Motorists

Fuel Pricing

The price Kiwis pay for fuel is a hot topic for our customers. We're big on transparency, so here's the lowdown on why your tank of fuel costs what it does.

The cost of fuel at the pump is made up of four parts:

1. What we pay

We buy crude oil as well as refined petrol and diesel. The amount we pay is made up of:

  • the cost of petrol and diesel on the international market; and
  • the cost to ship fuel to New Zealand.

Like the rest of the world, we buy fuel in United States dollars (USD). So, the price we pay for each barrel of oil also depends on the value of the New Zealand dollar (NZD) against the USD – sometimes it’s up, sometimes it’s down and that flows through to prices at the pump.

2. Government taxes and levies

A good chunk of the cost of each litre of fuel you buy is made up of taxes and levies. This includes GST, excise tax, ACC and emissions trading levies for petrol, and monitoring and emissions trading levies for diesel. Almost 70 cents per litre is collected by the government in fixed excise and an additional 10 cents per litre in Auckland for the Auckland Regional Fuel tax. Customers pay 15% GST on top of everything.

In general, there is about $1.05 of tax for every litre of fuel.

3. Operating costs

Our operating costs include the costs we incur to bring fuel to you, like international shipping, maintaining storage tanks, local distribution via trucks and tankers, the electricity we use to power our stores, right down to the credit card fees we pay the banks to take electronic payments. In short, all the things we need to run our business.

We also train and employ 2,500 Kiwis, to provide fast, friendly service at Z stations.

4. Our net profit

Our net profit is what we earn after we’ve paid for the crude oil, taxes and levies and accounted for our operating costs (of which we have fixed costs of $400 million per year). In our 2019 financial year we earnt about 4.4 cents per litre profit after tax. In the first half of our 2020 financial year this figure was down to around 3.6 cents per litre after tax.

You don’t just have to take our word for it – we’re a publicly listed company so it’s easy to find out how much money we are making by visiting our Investor Centre.

We use some of our profit to invest in Kiwi communities through Good in the Hood, digital innovation for better on-site experiences and we invest in alternative fuels like biodiesel (we’ve spent over $30 million on our biodiesel plant in Wiri, South Auckland). We also use it to pay dividends to our shareholders. Half of our shareholders are based here in New Zealand and invest in us either through KiwiSaver funds or through the approximately 8,000 Mum and Dad shareholders throughout the country.

FAQs

Here are the answers to some of the most common questions from Z customers.

If we haven’t answered your question, feel free to call us on 0800 474 355, send us a email at general@z.co.nz. You can also talk to us on Facebook and Twitter.

How do you decide how much to charge for fuel on any given day?

The pump price moves based on many factors - the international barrel price, refined fuel prices in Asia and the strength of the NZ dollar. These costs can move a significant amount even within a single day. We review all our costs to determine whether we need to move the pump price. Sometimes there are movements in costs that we can absorb, other times there aren’t. We also must consider the costs of running our business, so staffing, site costs, freight and shipping and so on. All these factors influence the final price decision.

Why does the price change so often?

Every day, prices shift globally. The two biggest influences are the cost of crude oil and the exchange rate.

Z buys crude oil, refined petrol and diesel on the international market. If the price of crude or refined fuels increase, or the NZD weakens against the USD, the prices will likely go up at the pump. If the opposite happens, then prices at the pump will come down.

Some of the reasons why the price of oil and oil products on the international market changes include: 

  • Market forces, including supply and demand and seasonal demands e.g. North American Winter where demand for heating oil increases; and
  • Global events, including wars or unrest in oil producing regions, or security threats to oil supplies.

Why is there a difference in fuel prices at different Z stations?

There can be different costs associated with operating service stations in different areas of New Zealand, including whether they are in an area that is tricky to truck fuel to, or whether building overheads are higher or lower because of the local property market.

Also, some of our service stations are situated in condensed areas of competition which can impact the final retail price – like in any market where a particularly high level of competition exists. The Auckland market is about 40% of the total New Zealand volume; the whole of the South Island represents around one-quarter of total volume.

These two factors can result in the range of different prices seen across the country, even in similar geographic regions.

If you can lower the price at some Z sites, why can’t you do it at all of them?

That would mean we wouldn’t be unable to recover the cost of supplying, branding and retailing fuel at some sites, which would make us uneconomic as a business.

Because of New Zealand’s varied geography and the different cost inputs at each individual station (like how high rent is, for example), we price very specifically to each location.

That said, we get that petrol prices are a big ticket on the household bill – we're motorists too! - and we do try and pass on price decreases whenever we can. We make around 3-6c a litre net profit which means we’re in an industry with high volumes, but tight profit margins.

We also want to deliver transparency. We can’t always lower the price, but we can show you where the price is best within your area. All you need to do is use our Z app feature, Sharetank – which shows you the cheapest Z price within a 30km radius and allows you to bulk pre-purchase if that price is great for you. You can then share that great price with up to five people.

Why is there price variation between different fuel brands?

There are a different business models operating in the market, from low-cost fully unmanned sites to full-service service stations. There are different operating costs associated with the different models. For example, the cost base of an unmanned, standalone site is a lot lower than a full-service station with things like canopies and car washes on prime real estate.

There are times when customers value the extra service and convenience and make decisions based on overall value to them, rather than fuel price alone. There are other times when the cheapest fuel price is what the customer wants, and we’re pleased that there is a range of options for people in the New Zealand market meaning a lot of people can now access the “no-frills” offering where prices can be lower.

Do more expensive fuel prices in some locations subsidise cheaper fuel prices in other areas?

No - what we are seeing in the market is (pretty fierce!) competition driving prices down in certain parts of the country or even cities and at certain times. We encourage you to make the most of these opportunities when you get them!

You can do this by accessing third party apps like Gaspy, or for Z prices, you can use our Z app feature, Sharetank – which shows you the cheapest Z price within a 30km radius and allows you to bulk pre-purchase if that price is great for you.

Why does the price at the pump sometimes go up on the same day, or the day before or after, there is an increased discount through the loyalty programme, Pumped?

This is a complete coincidence and prices change on every day of the week.

The discounts for Super Pumped Days are decided separately to the pump price, by a separate team. Super Pumped discount days are decided well in advance so we can book marketing (that takes quite a long time!), while the pump price moves are usually based on the international factors that are out of our control and are far more reactive, often changing within a single day.

Read more on this here.

How do you justify putting the price up for fuel because of what’s happening overseas when there’s fuel that’s sitting in your tanks already! You would have bought it for way cheaper ages ago.

Most fuel companies operating in the global North, Z included, operate on what's called "current cost" or “replacement cost” pricing. This means that the base cost for our fuel (before the other elements that we need to include such as freight and refining) is reflective of what it would cost to purchase at the same time we sold it. In effect, this equates to how much would it cost us to replace the fuel/oil we just sold at this moment in time.

Explained another way, it's sort of like how a house's value is reflective of the price it would fetch on the market if it was put up for sale today, not how much it cost to originally buy the house.

Why is petrol cheaper in Australia?

Long story short - they pay less tax. They pay a slightly higher car registration tax but much lower taxes at the pump. Australia also has a much larger market which means more volume, which means they can buy cheaper in bulk. But the real reason is that they pay a lot less fuel tax than Kiwis do at the pump.

When the price of oil goes down do you pass cost savings on to us at the pump?

Yes, we do. We pass on price decreases as quickly as we can, and we also absorb international price increases for as long as we think we possibly can.

Why are you slow at reducing your price but fast at increasing it?

It might seem like that's the case, but it really isn't. You don’t have to just take our word for it. The NZ Institute of Economic Research has done some research on New Zealand fuel price movements. Their research concludes that while people often think fuel companies are quick to raise prices but slow to lower them, the price at the pump go up and down at roughly the same speed in reality. You can read their full report online.

While we’re in business to make money, we’re not in business to make money at the undue expense of customers.

Why do you need to make so much profit?

We made $200 million in the last financial year. That may sound like a lot, and in dollar terms it is a lot, but to put it in context that’s about 4c per litre profit after tax. We run a low margin business with high value infrastructure that provides an essential service to New Zealanders. There’s a fair bit of risk involved in getting a highly flammable substance around this up and down country at the end of the global supply chain!

If we somehow brought our profits down, say halved them, that would still only show up as 2c per litre less at the pump. So, people get more benefit from being part of our Pumped programme (6c per litre everyday) than they would if we had to strip costs out of the business, including no longer investing in our assets, staff, communities, alternative fuels and other climate change initiatives.

We respect that people will have different views on how much profit is too much, especially when it comes to a product that many people think of as a ‘grudge purchase’ (yes, we get that!).

It’s a tricky one though as businesses do need to make a profit that allows them to operate (and in our case, operate with world class safety precautions), otherwise they wouldn’t exist. We think it’s OK to make a profit as it allows us to invest back into New Zealand, which is something we’re proud to do.

If we didn’t make profits, we couldn’t do that.

Why can’t you just bring prices down? 

We appreciate why people ask this. The simple answer is that it’s not that simple. Our prices reflect the current cost of doing business, including buying and bringing fuel from the other side of the globe then refining it and getting it around the country – all while adjusting for a changing New Zealand dollar. Our aim is to always offer the best price we can, while still covering costs and making a profit that we can then use to provide value to our shareholders (including all our KiwiSavers), invest in our staff, our assets, our communities and in climate change initiatives such as our biodiesel plant.

One thing to consider is that tax makes up a significant portion of the final retail fuel price. For petrol it’s basically 85c per litre (more if you’re in Auckland) - so even if the barrel price was $1 per barrel, the tax is fixed. We then have our costs to freight it in, deliver it to service stations and operate the network. After all that the actual amount of profit per litre is about between 3-6 cents per litre. That means there is very little movement available to bring prices down without us going out of business.

Why does New Zealand have the highest pre-tax fuel cost in the OECD?

We’re not convinced that we do. The OECD bar graph depicting pre-tax fuel prices use premium 95 and 98 octane petrol prices, not 91 octane petrol, which is New Zealand’s most used petrol by a long stretch. Also, as far as we can tell, the methodology each country uses to collect information varies greatly (they collect credit card data in Korea, for example, while the Australia data is collected in half a dozen major cities and nothing from rural towns across the country).

We reckon it’s misleading to compare NZ pricing to OECD pricing, it’s not comparing apples with apples. For example, fuel must be shipped across the world to get it to NZ, so costs will be higher. NZ is a really small market when compared globally. Also, discounts aren’t included in OECD data, but these now play a huge role in the fuel price in NZ.

Why doesn’t the fuel price drop when crude prices drop?

Because the price at the pump is dictated by refined petrol and diesel prices. While they may normally move in line with crude prices it doesn’t always happen. We can see shifts in the crude price, yet the refined price remains the same, similarly we’ve seen the price of refined product fluctuate even if the crude price remains flat. It can be wild ride on the commodities markets, but we do our best to smooth it out for motorists.

Plus, there are different ‘benchmarks’ for crude oil around the world depending on where companies get their fuel from. So, sometimes prices will drop in one crude oil benchmark, like the West Texas Intermediate (WTI), and that will have absolutely no relevance to us here in New Zealand, because we use the Brent Crude benchmark. A simple explanation for why we use Brent is that here in New Zealand, we get our fuel off ships that move around the world (Brent Crude), not from internal pipelines in countries like the United States (WTI).

Does Z engage in "price fixing" with its competitors?

No, we are very aware of our obligations under legislation prohibiting anti-competitive behaviour and have strict internal processes in place to ensure that we are never involved in illegal conduct such as price fixing or price-signalling (that’s why we have to be really careful about what we say about how we price sometimes!)

We've seen more variation in price in the last couple of years than we can remember, which suggests a really competitive industry.

We do all operate on the international marketplace for refined fuel though, and we are all subject to the variations in the strength of the NZD.

Do you think the Government should reduce tax on fuel?

Tax is a matter for the Government and the people of New Zealand.