North-South divide: the 'Gull effect' and why fuel is cheaper in Auckland

Aucklanders have long benefited from having access to cheaper fuel options than the rest of the country and this persisted as the latest round of price hikes took effect.

According to the latest Pricewatch figures, the cheapest price point for 91 remains in Auckland, while the most expensive fuel can be found in the South Island region of Nelson.

The high fuel prices in the South Island are often attributed to the high freight cost required to get fuel to these regions. This also applies to Waiheke and Great Barrier Island, which rely on dedicated barges for their fuel supplies.

At the end of last month, AA spokesperson Mark Stockdale said the pricing discrepancy between the North and South Island essentially amounted to cross-subsidising, with the South Island's higher prices countering the lower prices in the North.

The prevalence of lower prices in the North Island is often referred to as the 'Gull effect', which borrows its name from the presence of low-cost competitors - including Gull, Allied and Waitomo - in the north but not the south.

Stockdale said that the only way to solve this problem would be to re-introduce uniform pricing, but warned that this isn't without its challenges.

"That poses a lot of problems, because there are parts of New Zealand – particularly in the North Island – that are paying pretty reasonable prices thanks to the presence of low-cost brands that are typically unmanned.

Stockdale said that if we go back to uniform pricing it could mean that parts of the North Island might end up paying more than they currently are, while Wellington and South Island might end up paying less.

"Half the country will be happy and the other half will be unimpressed," Stockdale said.

Pricing strategies of the major fuel retailers came under the spotlight earlier this year, when a leaked email revealed that a BP pricing manager outlined a plan to counter dwindling sales in Ōtaki by raising the price of fuel across the entire region, with the expectation that competitors would do the same.

A spokesperson for BP defended the move, calling it a response to increased competition.

"Petrol prices in New Zealand are highly competitive and we adjust our prices in response
to local competition, particularly in instances where discounting has become unsustainable, which is what occurred in the lower North Island last year."