Between the lines: Petrol proves too rich for Shell

Most of us wince these days when we are filling up the tanks of our cars.

Petrol prices have risen 38c a litre since July last year and forecasts are for them to go even higher.

No surprise then that the public are watching with bated breath the fate of Fletcher Challenge Energy's retail chain, Challenge.

Its future is uncertain after Dutch-owned Shell this week announced it had sought Commerce Commission clearance to buy Fletcher Challenge Energy's New Zealand assets. It undertook to divest Challenge and several other gas assets to gain approval.

Shell really only wants the lucrative oil and gas exploration and production assets here and possibly in Brunei, but Fletcher Challenge may require it to bid for the whole energy company once regulatory hurdles are cleared.

The Automobile Association is concerned what might happen to pump prices if Challenge disappears.

Its arrival in April 1998 was a shot in the arm for competition in an industry captured by the big four oil companies, BP, Shell, Mobil and Caltex.

Prices dropped 5c a litre the week before Challenge opened its first station. Everywhere Challenge opened a new station, its competitors would match its price.

"For the first time motorists enjoyed price benefits that had been promised when the oil industry deregulated 10 years earlier," said the AA's George Fairbairn.

Timing was on Challenge's side when it started as crude oil prices were at an all-time low and pump prices were dropping anyway.

Challenge now charges the same as the big four but claims prices would be even higher if it and Australian-owned independent, Gull, were not in the market.

As the Consumers Institute says, there needs to be someone independent out there committed to taking on the big boys in order for consumers to benefit.

Nationwide, 71 of Challenge's 98 outlets are independently owned. The independents say the oil companies are modern-day pirates, closing smaller independent sites in order to concentrate volume in their own stations.

Challenge's arrival slowed the trend, particularly in rural areas.

Populist politicians have accused the multinational oil companies of predatory pricing.

Not only do they all raise their prices at the same time by the same amount, they also target areas where new entrant Gull operates. Prices around Gull stations have dropped by as much as 6c a litre less than other parts of the same city or even suburb.

The industry says that is competition, not collusion.

The big four argue competitive prices would remain if Challenge disappeared.

Profit margins are squeezed tight through the heady rise in crude oil prices and weak dollar.

Without an active independent with national spread - Challenge planned to have 200 outlets by the end of 2002 - who ensures those margins stay tight?