Why Auckland Mobil stations 2km apart have a 19 cents per litre fuel-price difference

Last week the cost of fuel at Mobil Kingsland was $2.19 per litre. Just 2km away at Mobil on Karangahape Rd the cost per litre was $2.38 - a 19 cents difference.

So how is this possible and what causes such enormous price variations between two petrol stations operating under the same banner?

AA PetrolWatch spokesman Mark Stockdale says it all comes down to competition in the area.

Two Auckland Mobil stations, 2km apart have such a big difference in fuel price.

"If they see a competitor charging a lower price they are likely to drop their own price because they know if they don't they will lose sales," Stockdale said.

"A lot of service stations are independently owned so the owners can set their own price but even company owned service stations will adjust their price in response to maybe what an independent service station down the road is doing."

He said there were no other service stations in the vicinity of Mobil K Rd so it could keep its fuel price at a significantly higher price.

"In Kingsland, there are other stations in the vicinity, including a Gull. Gull is one of those low-cost brands ... those who have created this price competitive market.

Stockdale said low-cost brands such Gull, Allied, G.A.S and Waitomo are independent brands with low operating costs, running stations which are often unmanned and without a retail shop which means they can offer fuel at lower prices due to lower overheads, which mainstream service station brands match.

Self-service fuel stations typically tend to have lower fuel prices. Photo / Facebook

"Gull are the ones that really kicked it off. They are the largest independent brand in New Zealand. They have had a reputation for many years of having the lowest prices, we even call it the Gull-effect," he said.

"Gull will open a service station, their price will be lower and that then drags the prices down everywhere else in that suburb. The effect of having Gull in your neighbourhood is that the prices are lower, and that's exactly what we are seeing in Kingsland. There [was] a Gull in Kingsland which [was] charging $2.19 and that's probably why Mobil [was] charging the same price. They probably don't have any choice."

This impact is also likely to be felt in Glen Eden, where Gull is currently in the process of opening a new petrol station.

The Herald has approached Gull for comment.

Battle in the north

Stockdale said that competition, and therefore price variation, was most pronounced in the north of the country.

"We see more price competition in the North Island, north of Wellington, and less price competition south of Wellington," he said.

Gull is only based in the upper North Island-based which is why fuel prices are cheaper in Auckland compared to Wellington and the South Island.

"We're seeing a lot of that price competition but it's often only where you see a Gull or where there is an Allied or a G.A.S or some other unmanned brand ... in other parts of the North Island where Gull don't operate like Wellington, prices are higher," he said.

"Motorists are benefiting because of brands like Gull because they are getting access to lower prices than they would otherwise be paying."

Regional fuel tax has seen the price of fuel increase by around 11 cents per litre. Photo / File

In a statement to the Herald Mobil said setting the price of fuel was a balancing act between immediate effects and influences of the market versus the longer-term outlook for the business and industry.

"New Zealand continues to be a very tough, competitive petroleum market," Mobil country manager Andrew McNaught said.

"At service stations where Mobil sets the fuel price, we are extremely focused on providing a competitive price for the consumer, while also generating an adequate return to ensure the long-term viability of our business, and to fund investment that will enable us to improve and maintain the local fuel supply chain."

How fuel prices are set?

Fuel prices often change due to changes in the exchange rate, market competition, product cost, duties and taxes, retailing and transportation costs.

The exchange rate has been falling recently which is part of the reason the price of fuel has increased, that and the regional fuel tax.

"The national [fuel] price is $2.30 a litre for 99 octane," explains Stockdale.

"You've got the regional fuel tax in Auckland of another 11.5 cents so that $2.38 that's higher than Wellington which makes sense if you're including the regional fuel tax so when you get a price like $2.19 in Kingsland that's clearly a discount - well below the national price, even more when you consider there should be that 11.5 cents regional fuel tax," he said.

While those bigger brands might match the pricing at the independents, Stockdale says they often can't match the much lower running costs of the independent - which in turn means they aren't necessarily recovering all their costs from the price of the fuel.

Stockdale believes that the competition in the north is having an impact across the country.

"AA believes the big brands are affording to do that by charging a higher price in Wellington and the South Island to offset the lower price they are charging elsewhere," he said.

"We actually think that those prices in Wellington and the South Island are cross-subsidising the lower prices that we see in those other North Island locations."

Time for regulation?

Stockdale says regulation of fuel prices would not streamline petrol prices throughout New Zealand.

A recent survey by AA shows half of its members want fuel prices to be regulated by the Government and half do not.

"Our members are split on whether they want to see price regulation," he said.

"If Government was to regulate fuel prices, in the AA's view, that means fuel prices in Wellington and the South Island would go down and fuel prices in the North Island would go up."