Between the lines: Oil giant gets wind of fresh rival

When Shell came riding in like a white knight and sliced petrol prices just in time to save many Kiwi holidays, what were its real motives?

The aggressive 10c spot cuts were perfectly timed, and geared to snatch the mantle of number-one petrol supplier away from BP's grasp, says Shell.

Holding just over 26 per cent market share compared to BP's 28 per cent, it looks like Shell doesn't have too much ground to make up.

But why has it suddenly decided to start a price war now?

One reason could be that discount petrol chain Challenge! is up for grabs.

As part of Shell's deal to buy Fletcher Challenge Energy, it agreed to divest the petrol chain. Challenge will subsequently fall into the hands of Fletcher's new entity, Rubicon.

But it won't be there for long. Rubicon is getting the Challenge network for $20 million, but most think it is worth more. It will be tweaked to increase value under Rubicon's control, and then sold.

Its new buyer could prove to be a more solid discount competitor for the likes of Shell and the other industry giants.

Australian independent retailer Gull Petroleum, which already has about 20 stations in New Zealand, has expressed interest in buying the Challenge network. So too has discount independent Liberty Oil, whose much-heralded entry into the country has not materialised.

While some argue that Challenge has had little effect on the local petrol market, 5c came off prices as soon as it was established. But Challenge has proven too small to be an effective price leader, although it lingers longer before it raises prices in line with the four majors.

That could change if somebody like Gull took over Challenge and a bigger part of the market. Whether or not it could establish a price leadership position is questionable, but it is at least likely to try.

Which begs the question: Is Shell trying to establish a market share now because it can see turbulence ahead?

Or, as one analyst cynically suggested, is it trying to win public favour in time for March's shareholder vote to approve Shell's purchase of Fletcher Energy?

Any attempt to snare a market share is dependent on Kiwi motorists being loyal to a given company. The presence of loyalty programmes might help some oil companies in this area, but the average motorist seems more likely to stop at the nearest station than go searching for his or her favourite.

Whatever its motives, Shell's cuts have been good for car owners.

What could be even better would be the emergence of a stronger independent competitor.

Only then will we see how low petrol prices can go.