Kiwis are having to dig deeper into their pockets to pay for their petrol. After the price slumped to well below $2 a litre at the start of the pandemic, it's now hitting record highs, reaching $3.18 in Northland on Thursday. Northern Advocate reporter Julia Czerwonatis spoke with Terry Collins, principal adviser for motoring policy at the AA about fuel taxes, the oil market and how you can save some cash.
Q: What makes up the price of petrol at the pump?
A: The price of petrol is made up of some international and some domestic inputs. The international inputs include four things.
One is the New Zealand dollar and that has gone down 7 cents in the last months. That's good for exporters, but not so good for importers and we import all our [crude] oil and petrol.
The second part is the cost of the crude oil itself and that's dictated by the amount of demand and amount of production.
Then there are the refining costs.
The final one is the geopolitical situation internationally. We've got a number of things going on currently, not least the Ukrainian-Russian war.
Q: What does war have to do with our fuel prices?
A: Russia is the second-largest exporter of oil internationally – they sell about 10.1 million barrels a day and export about 40 per cent of the energy to the European Union.
Because of the sanctions, they can't sell their oil which means there is a big chunk of oil not available on the international market and it has to be substituted from other sources.
Q: So New Zealand is not the only country that experiences this price hike?
A: It's everywhere. They're screaming about it in Australia. They are talking about a record high in the US and in the UK. It's anywhere that is subject to market forces. We are internationally traded so we are susceptible to international prices.
Q: You talked about domestic influences on the fuel price. Could you please explain more?
A: On a litre of petrol, we have about 70 cents that goes towards what's called fuel excise duty and that builds and maintains our roads.
We have another 6 cents that goes to the Accident Compensation Commission which pays for our road accidents.
We have some small fees – around about 2 cents – which are for the monitoring of fuel quality and a small regional tax.
Then the variable part kicks in. We've got the ETS – the Emissions Trading Scheme – and in the last year, the price for a tonne of carbon has gone up from about $25 to $80.
We used to pay around 9 cents a litre for ETS a year ago, we're now paying 20 cents and it's going upwards because the Government would like to see the final price at around $250 a tonne. So, we know that it will be going up all the time until it gets to that point.
Finally, the last variable is the GST. We add the goods and services tax to the final cost of everything.
It's a perfect storm, we are now at over $3 a litre for 91 and it's going to get worse.
Q: Can the price hike indefinitely?
A: The whole thing is about supply and demand. When the fuel price goes up about 10 per cent, our usage only goes down about 1.5 per cent. Because we don't have alternatives.
We don't have public transport or other ways of getting about. If you have to travel, you have to buy your fuel.
I'm thinking we could almost have $3.30 a litre for 91 if this continues in a similar vein in the next week or two.
Q: What could our Government be doing to give us some price relief?
A: We [the AA] have said this for a number of years but it never really got much traction: it's subject to GST.
Petrol is a good, the delivery of it is a service. The taxation on it – the ETS, ACC and other things – isn't a good or a service, they are a tax. I don't think we should be paying a tax on a tax. That'll make about 15-16 cents difference a litre if they were to take that tax off it.
That's just one area where it is very noticeable that the Government's tax take increases as the price of fuel goes up.
Q: And other than that?
A: There is not a whole lot that we can do. We are at the mercy of international trading prices.
It's a misconception that the Government controls this. The taxes and duties, except for the GST, are hypothecated so they go to the purpose for which they are collected.
How else are we going to build and maintain our roads unless we've got someone funding it? How else are we going to pay for our accident compensation unless we've got the levy on it?
Q: Can drivers still save money?
A: Some really simple tips can save you between 15 and 20 per cent of the fuel bill, depending on the nature of your driving.
Make sure your tyres are inflated to the correct pressure. Make sure your car is maintained so that it is operating efficiently.
Reduce your small trips, don't drive for 1km. Vehicles are the most efficient when at operating temperature. When you hop into a cold car, drive 1km, jump out and do some shopping and come back home again it's never going up to operating temperature so it's going to be using a lot more fuel than you normally would.
Simple things like taking the golf clubs and any extra weight out of the boot, or taking off the roof racks with big containers when you're not using them. It creates drag and it'll increase fuel usage of your vehicle as well.
Then the driving itself: don't speed, you're going to burn petrol. The faster you go the more gas you are going to lose. Accelerate slowly and anticipate traffic. No fast acceleration or sharp braking.
Q: Are we going to have a fuel shortage?
A: I don't think we'll have a fuel shortage. Other than constrained supply, I don't see that happening. Right now, there is a real incentive for everybody to start producing because they are making a lot of money.
Q: Will we ever drop below $2 a litre for 91 again?
A: I think those days are gone. Unless they start giving it away.