OfReg presses fuel suppliers on price

| 13/12/2018 | 42 Comments
Cayman News Service

Peanuts Rubis gas station in Red Bay

(CNS): Duke Munroe, who is responsible for the regulation of the local fuel sector within the Utility Regulation and Competition Office (OfReg), has told CNS that the regulator has intervened to persuade the local fuel suppliers to drop the price of fuel by more than they had intended and much sooner. While OfReg continues to conduct the necessary market research to fully understand the complexities of the fuel sector, which involves the aviation supply, CUC as well as fuel at the pump, the regulator is still taking steps to ensure that drivers are not being ripped off without taking the ‘nuclear option’ of price controls. 

Munroe said that OfReg can now see a lot of important information that was once kept from the public and even government officials, so it can assess when the bulk suppliers are acquiring fuel and at what price against the context of the world market.

With this information it can start to address what people used to see as the “rocket and feather” approach to prices at the pump, which is the perception of consumers that fuel prices go up instantly at the pump when global prices increase but take months to reflect any decrease. He said the regulator has been in discussions with the fuel suppliers to ensure that this is addressed, as it has been a genuine cause of inflated fuel prices.

As a result of the regulator’s increasing intervention and monitoring of the sector, Munroe said that people are now beginning to see for the first time in the local fuel market clear differences in price at the pumps, allowing drivers to shop around. He said that consumers can expect to see prices falling even more over the coming weeks.

Munroe explained that conducting the proper analysis and assessment of the fuel market is not as simple as people may think, given that it is made up of three components. The fuel suppliers are locked into deals and contractual agreements when it comes to the aviation supply, as well as the fuel that goes to CUC. The concern for the regulator is that the wholesalers don’t try to boost their profits in the only part of the market where they have free reign over prices by ripping off drivers at the pump.

The regulator and government have been eager to stress that they want to avoid dictating prices and the aim is to ensure a fair competitive environment where the fuel suppliers make a reasonable return. But that has to be balanced, Munroe said, to ensure that the consumer is not helping plug profit losses because of the reduced margins the fuel companies get in the other two market sectors.

With the intervention, Munroe believes that more competition is emerging. He said there has been price variation of up to 52 cents per gallon for some fuels across the different brands on Grand Cayman. Following the recent pressure from OfReg, fuel prices have fallen to $4.14 per gallon at one retail outlet.

“Our priority is to ensure equitable fuel prices to the Cayman public in keeping with our mandate, and in support of government’s broad outcomes,” Munroe said. “While the market assessment will be instructive to our policy recommendations to government, our current efforts are aimed at ensuring prices in the market are not collusive, reflect movement in acquisition costs by the various players and are responsive to global trends.”

OfReg is in the process of carrying out a request for proposals for a relevant experience consultant to carry out a comprehensive study to define the relevant markets within the fuel sector and assess the extent and effectiveness of competition. The work is expected to start in the first quarter of 2019 and once completed, OfReg will enhance its regulatory framework.

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Category: Business, Fuel

Comments (42)

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  1. Anonymous says:

    New Orleans—unleaded $1.99/gal today.

  2. Anonymous says:

    I was once told by a gas station owner, that he doesn’t know what to do with the money, that is pouring in.
    Rubis would have never bought these stations if it wasn’t that extremely lucrative.
    It is the same caymanian nailvity, that clever politicians, business men and religious leaders, take advantage of.

    The people deserve it.!

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  3. Anonymous says:

    Nothing will become of this, too many politicians own or have shares in petrol stations. I can also mention the many that may have, or have ties to shares in CUC, profit driven. Nothing will change- Supermarket is also of concern. Mafia system!

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    • Anonymous says:

      It’s a cartel – we do not have a competition bureau, let alone “Better Business” Consumer advocacy. We have the opposite – cronyism, nepotism, the suppression of transparency, deficient conflict disclosures required by Constitution, and the resulting kleptocracy accepted as governance.

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      • Anonymous says:

        Mr Monroe why don’t you help us on the Brac where gas is still $5.14 p gal. and they only pay Govt. 12 1/2 cents p. gal. duties, in Grand they pay $75. The policitians here won’t help us .

  4. Anonymous says:

    In the absence of anti-trust laws, there always has been and always will be collusion between the 2 major fuel suppliers. Same for the 3 shipping lines who openly collude to set Cayman freight rates.

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    • Anonymous says:

      Do anyone on this Island really believe that Ofreg can make a difference in the price of fuel here? Do we really have people that are that stupid? I can see the Managers of the trillion dollar oil companies operating here shaking in their boots now worrying that Ofreg is about to study their pricing practices! People, believe me, Ofreg can do zilch, nada, nothing about the price of fuel here not now nor in the future. It would make more sense to take the money that is wasted away in this stupid, rediculas department and give it to the local consumers as some type of a subsidy towards fuel purchases or give it to CUC to help the poor people that are struggling to pay their electricity bills. I understand that Ofreg has over 20 employees all earning in excess of $100,000.00 per annum and all of their tasks are sub-contracted out to ‘Consultants’ as they have no one qualified to do anything. We have created a monster and no one has the b—s to shut it down.

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      • Anonymous but serious says:

        This writer is almost 100% correct!!!
        When Monroe was hired to replace MCTaggart everyone in the fuel business was happy that someone with some inderstanding was taking the helm to help dealers make some money and give the public a break on prices! What a disappointment! When his back ground was looked into by some concerned dealers he didn’t have any experience in fuel price control or fuel market analysis!
        If Mr McTaggart, a veteran in the oil industry couldn’t come up with a formula for the fuel suppliers how in the God’s world does anyone believe that Monroe will change things! McTaggart worked with ESSO for years and knew how prices were set but because of his agreement when he left he couldn’t and can’t divulge any information.
        Both Rubis and Sol have the similar shareholders! If Monroe believe that using the nuclear option will hurt these companies he is blind or trying to fool us consumers! No Bo Bo! Not today! You can’t fool all the people. At least not the dealers!! These 2 companies can stop the fuel lines from flowing for one day and wreck the country if he or government tried that! As to the other 3 fuel providers their fuel is pumped in US gallons and charged in CI$ and that’s why their prices look sooooooo attractive! Then there’s another fuel operator that imports fuel duty free but consumes the fuel on island without anyone from the fuel inspector’s intervention! He isn’t the person for that job cause he doesn’t know the retail or wholesale fuel business. Get him the hell out of there and put someone with the local fuel knowledge. There’s Victor Thompson who used to represent Cayman in swimming years ago that worked for Texaco forever. He’s the fella that can turn this ship around!
        Monroe and the entire OFReg team is running a fake operation and the government knows it and should shut that operation down. It’s draining the treasury of the Cayman Islands of money that could go to the elderly, sick and education!!

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    • Anonymous says:

      The biggest problem in the Brac with the high gas prices is the gas stations and not the suppliers

  5. Anonymous says:

    Price is less important than quality. OfReg only test at depot and airport. Retail gas and diesel can be sourced from wherever, and contain abnormal levels of rain/salt water, rust and station-owner “cutter” additives without any restraint. Pumps are inspected periodically.

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  6. Donnie says:

    First of all, we need to understand that US$/US gal is equivalent to CI$/Imp gal because the CI$ is US$1.20; and an Imp gal is 1.2 US gals. We get 1.2 more in gals and we pay with a dollar that is worth 1.2 more. There is no need to convert; we can compare the actual dollar amounts directly.
    Secondly, we need to understand that the production of gasoline in the US where ours comes from is well regulated and there is no significant difference in what Rubis or Sol sells locally.
    I you have a look at the build-up of what was making US prices average $2.86/US gal in October in the link https://www.eia.gov/petroleum/gasdiesel/ and compare it to our prices locally of say $4.54/Imp gal, this is what you find:

    1. The cost of crude and refining is the same for us and them. It’s the same crude oil refined in the Gulf that becomes the gasoline that they and us use. So, the crude and refining component is 71% (51% + 14%) of the $2.86/gal price, or $2.03/gal. That is also the crude and refining component of our price; not 71% of our $4.54/gal.
    2. The US tax component is 16%. We pay 0.75c per gal; that is 16.5% of our $4.54/gal price.
    3. Now, if we were paying 13% of our price for Distribution & Marketing, that would amount to 0.59c. Our price would be $2.03 + 0.59c + 0.75c = $3.37/gal.
    4. It isn’t because for Distribution & Marketing, we pay $4.54 – 2.03 – 0.75c = $1.76. So, Distribution & Marketing is almost 39% in Cayman while it is 13% in the US.
    Yes, there is the cost to ship the gasoline to us from the US Gulf coast. But we are not unique in that regard. Most of the gasoline used in say south Florida comes into Port Everglades in Fort Lauderdale by tanker from the same Gulf coast that we import from. The size of the vessels in our case may be smaller and the unit rate a bit higher. But it doesn’t account for the $1.17 difference between $1.76 and 0.59c.
    So it’s obvious that the difference between our prices and those in the US are to be found in the Distribution & Marketing bag, the bag controlled by the petroleum merchants who are licensed to wholesale fuel (they are not oil companies anymore).
    There are two fundamental interventions that I have argued for years that need to be made.
    Firstly, I cannot understand for the life of me why we continue to allow the ‘incestuous situation’ of petroleum merchants owning outright or controlling retail outlets though master lease and sub-lease arrangements. The net effect is that the retail outlet cannot shop from the wholesalers based on the best price; they must buy from which ever wholesaler controls them.
    Can you imagine if local building contractors were controlled by either ALT, COX or Kirks and could only buy their materials from whichever controlled them? Do you think the cost of building your house would be the same?
    There is no reason in today’s economy why Caymanians cannot own a gas station without any involvement or control from the wholesalers. The problem is caused by two things – the indentureship mentality passed down from the oil companies to the new petroleum merchants and the wealth that these merchants generate and peddle to entrepreneurs wanting to get into the sector. The only cure is legislative, but no legislator has been willing to take up the issue for the 25 years that I’ve been preaching it.
    This is in spite of the fact that the petroleum merchant cadre of today are the by-product of legislative interventions which broke up the control of retail by producers for the same purpose – to improve competition.
    And the second fundamental intervention that is needed is an embargo on retail outlets. It has been clearly demonstrated long ago that the opening of another gas station does nothing to the price. Between Savannah and George Town, I pass 6 gas stations and if that number grows to 10, the prices will be the same as long as the controlling situation remains the same.
    And we are grossly oversupplied in terms of registered motor vehicles per gas station. The direct effect of this are that it will continue to take exorbitant mark-ups for the smaller gas stations to make what they need to feed the merchants and take care of themselves. An embargo on new stations gives existing stations and opportunity to sell more volume and bring down their prices. Free them from control form the merchants and let them purchase where they can get the best price and we may finally see some real competition.

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  7. Anonymous says:

    Duke is the one to sort out this foolishness!

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  8. OneVoice says:

    What the use, we will make noise for a few days and nothing will happen, so we forget it myself included, and the same old same old continues. we have ourselves to blame truly. Nothing change without mass picketing

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  9. Anonymous says:

    Think yourself lucky Cayman. A gallon of Petrol (gas) in the U.K. is around US$9

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  10. Anonymous says:

    asked before…how many ofreg members are masons?

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  11. Anonymous says:

    forget ofreg…give me the cost data and a calaculator….and i could give you the answer in 30 mins.

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  12. Anonymous says:

    “OfReg is in the process of carrying out a request for proposals for a relevant experience consultant to carry out a comprehensive study”

    Is it just me, or for the last two years did this highly paid group of individuals do nothing other than spend millions of dollars on consultants to tell them what they didn’t know, and after two years they still know nothing?

    Survey Monkey says “Could we be any worse off it we just got rid of OfReg and let everything go back to being unregulated”?

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    • Anonymous says:

      Our Gas in Cayman is over US$5.20 per gallon, and you are patting yourselves on your backs……no one still can’t explain why our gas is almost 3 x’s the amount. Someone is getting a hefty kick back somewhere…but this has been going on for years!!

      Plan Your Trip
      Average Regular Gas Price in Florida
      Jacksonville 2.204 +0.002
      Orlando 2.212 +0.002
      Tampa 2.212 +0.004
      Ocala 2.224 +0.002
      Sarasota 2.247 0.000
      Gainesville 2.278 -0.023
      Tallahassee 2.281 +0.007
      Naples 2.318 -0.019
      Cape Coral 2.321 +0.007
      Pensacola 2.329 +0.008
      Miami 2.454 +0.008
      « Average Regular Gas Price by State

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      • Traveller says:

        Per U.S. Gallon!
        We use Imperial Gallons; granted it is still cheaper but the U.S. is a special case, it would take several paragraphs to explain why fuel of any type is priced the way it is in that country. A better comparison would be Jamaica, right next door or even Trinidad which produces crude oil.

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        • Anonymous says:

          Cars don’t run on crude oil. We need high grade refined products, tested regularly for quality. Those results should be public so that consumers can source their fuel from the cleanest post-Ivan tanks.

        • Anonymous says:

          We know how to make the conversion. You fail to note that those US gallon prices are also US dollars which are cheaper than CI$.

      • Anonymous says:

        Last weekend— Atlanta $2.23, Mobile $2.19

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    • Anonymous says:

      Yes!

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  13. Anonymous says:

    I’m not normally one to post negatively, but haven’t we seen this before? When there is some sort of push from Government or populace we see prices drop, give it a couple of weeks and they start creeping back up, and before you know it they are higher than when we started!

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  14. Anonymous says:

    Even the lowest price still feels like a rip off. Been paying between $4.5 -5 per gallon and in the US in most states its half price and in USD. It’s really ridiculous and should be at least under $4 per gallon considering most of it gets burned up sitting in traffic. Next car I’m buying will be electric.

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    • Anonymous says:

      unfortunately, even with an electric car you still have to pay CUC who passes on the fuel price to you..can’t win for losing..

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      • Anonymous says:

        Not if you invest in an off- grid charging rig.

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        • Anonymous says:

          Would OP still come out with savings?

        • Anonymous says:

          Unfortunately, while the sun is shining is the time that most people are on the road driving. But have no fear, you will soon be able to purchase my patented Moonbeam Panels which will enable you to charge you batteries at night.

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  15. Anonymous says:

    Read the last paragraph. OfReg is looking for an excuse to cost this country millions

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  16. Anonymous says:

    The price reduction is the result of lower gas price in the Gulf where our fuel comes from. Not OfReg

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  17. Anonymous says:

    OfReg had nothing to do with the recent price drop. They are talking BS and need to be shut down.

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