Media Releases

Z Energy cleared to acquire Chevron subject to divestments

29 April 2016

The Commerce Commission has cleared Z Energy Limited’s application to acquire 100% of the shares in Chevron New Zealand, the owner of the Caltex and Challenge brands in New Zealand.

The clearance is subject to Z Energy divesting 19 retail sites and one truck stop in locations where the Commission considers competition would be substantially reduced as a result of the merger.

The Commission analysed the competitive impact of the proposed merger on the supply of fuel to retail and commercial customers. It also considered how the merger would impact on competition in upstream markets associated with refinery, distribution and storage infrastructure. In particular, the Commission’s analysis focussed on seven markets affected by the acquisition:

  • retail service stations
  • truck stops
  • direct supply to commercial customers and fuel resellers
  • terminal storage facilities
  • aviation fuel
  • marine fuel
  • bitumen.

The Commission’s role was to consider whether the merger would substantially lessen competition in a market due to the loss of Chevron. The investigation did not assess whether fuel prices in New Zealand are too high.

Chair Dr Mark Berry said that having analysed each market, the Commission is satisfied that Chevron’s departure from New Zealand would not substantially lessen competition subject to divestments being undertaken. Commissioners were in agreement on the impact of the merger on six of the seven markets, with the exception being retail service stations.

“Chevron, as supplier to the Caltex and Challenge brands, has been a passive competitor in New Zealand and followed the lead of its rivals rather than taking an aggressive approach in its pricing. We consider, by majority, that subject to Z Energy divesting 19 retail sites Chevron’s absence would not make a material difference to the competitive dynamics we currently see, where retail price movements are dominated by Z, BP, Mobil and Gull,” Dr Berry said.

The Commission assessed whether the merger could increase the ability of the remaining three major retailers to coordinate retail pricing. Three of the four Commissioners on the Division (decision-making panel), Dr Berry, Sue Begg and Anna Rawlings, consider that the information obtained during the investigation showed pricing patterns differ across the country and Chevron’s absence would not make coordination more likely given the divestments the Commission required. Dr Jill Walker dissented on this part of the decision.

“Behaviours such as price following, regional pricing differences or rising margins can be found in either competitive or coordinated markets. Where we may have had the most concerns about the merger enhancing the prospect of coordination, the majority consider the divestments ensure this behaviour is no more likely post-merger than it is now. Further, we don’t believe Chevron’s absence would make a material difference given its passive role in the market,” Dr Berry said.

“Commissioner Walker’s dissenting view is that there is evidence to suggest that coordination of retail prices is already occurring in some local markets, which would become more firmly entrenched with the merger. Moreover, the permanent removal of a competing supply chain means the potential for Chevron’s assets to disrupt coordination in the future is gone.”

“In the remaining six markets, we unanimously concluded that Z Energy would continue to face constraints from remaining competitors, or customers can exercise countervailing power when negotiating with it. In the case of bitumen, Chevron already intended to leave the market and bulk customers have access to imports if Z Energy was to materially raise its price.”

Brief summaries of the Commission’s decisions relating to each market are outlined below.

A public version of the full written reasons for the decision will be made available on our website shortly.

Market summaries


Z Energy (Z) owns and operates a network of just over 200 service stations and sets the retail price at those stations. It also supplies a small number of independently-owned Z-branded stations on a wholesale basis.

Chevron supplies around 150 Caltex-branded service stations on a wholesale basis. It also supplies fuel in the retail market indirectly through the Challenge and McKeown brands. As a result of the transaction, the competition between Z and Chevron for retail customers that purchase through service stations would be lost. Competition from BP, Mobil, Gull and independents would remain.

The Commission assessed whether the proposed merger would be likely to substantially lessen competition in any one or more local retail markets either because by removing Chevron it would:

  • allow Z to profitably increase the prices it charges to consumers in areas where both Chevron and Z are present – referred to as unilateral effects; or
  • allow Z, BP and Mobil to enhance coordination between themselves so they could collectively exercise market power to raise or maintain prices above competitive levels –referred to as coordinated effects. 
Unilateral effects

The Commission considered whether the merger would allow Z’s ability to increase prices at service stations in local areas by removing Chevron as an independent competitive constraint.

We concluded the proposed merger would allow Z to increase prices and therefore that the merger would be likely to substantially lessen competition in 22 local areas. Some of the 22 areas overlap. As such, Z was able to remedy those concerns through an undertaking to divest 19 stations. The stations are located in the following regions:

  • 3 in Northland
  • 1 in Auckland
  • 3 in the Waikato
  • 1 in the Bay of Plenty
  • 1 in Wellington
  • 2 at the top of the South Island
  • 3 in Christchurch
  • 4 in Canterbury (outside of Christchurch)
  • 1 in Otago

The divestment undertaking provided by Z remedied all of our concerns in these areas. The specific sites in question will be detailed when the full written reasons are released, as Z needs to properly inform the affected staff and any independent service station owners.

In all other local areas, we concluded that the merged entity would face sufficient competition from remaining BP, Mobil, Gull and/or independent service stations.

Coordinated effects

The Commission assessed whether the proposed merger would have, or would be likely to have, the effect of substantially lessening competition by increasing the likelihood of coordination between the remaining major fuel companies (Z, BP and Mobil). The majority of the Division concluded it would not.

The type of coordination we are referring to is not illegal under the Commerce Act. Coordination involves firms in a market recognising that they can reach a more profitable outcome if they accommodate each other’s price increases rather than competing on volume, price, or other dimensions of competition. Coordination is more likely to occur in markets with only a few players where they face similar costs and can readily observe what each other are doing.

As part of determining whether removing Chevron would make a difference, the Commission considered whether coordination was already occurring in the retail market and whether the proposed merger would enhance this coordination.

The behaviours occurring in the retail fuel markets in New Zealand, such as price following, regional pricing differences and rising margins, can occur in both coordinated and competitive markets. The majority of Commissioners consider it is possible, though not definitive, that coordination is occurring in some local markets. However, where they may have had the most concerns about coordination occurring post-merger, they consider the divestments remedy those concerns. Further, they consider that the loss of Chevron would make no material difference to this behaviour given its passive role in the market as a wholesale supplier. The likelihood of Chevron being an effective constraint on coordination in the future is low, even if sold in the future to another party.

Commissioner Walker was not satisfied that the proposed merger would not increase the ability of the remaining three major fuel companies to coordinate retail pricing. She considers that there is evidence of tacit coordination between petrol retailers in some regions, primarily where Gull is not present, and that this has contributed to increasing margins in the petrol industry. Commissioner Walker considers that the permanent removal of Chevron’s assets as an independent supply chain means its potential to disrupt coordination is gone and this behaviour would become more firmly entrenched post-merger.

Storage terminals

Refined fuel products are delivered to and stored in terminals until dispensed for use in downstream markets. In general, terminals are located at coastal ports, although a notable exception is Mobil’s inland terminal at Woolston in Christchurch. The four major fuel firms (Z, BP, Mobil and Chevron) have access to each other’s terminals under a borrow and loan system, which enables the firms to charge each other throughput fees to withdraw fuel from a terminal they do not own.

Post-merger, Z would own and control a greater proportion of terminal storage facilities at ports around New Zealand. In particular, Z would own all terminals at Timaru and almost all terminals at Nelson. However, the Commission does not consider that the merger would impact on BP and Mobil’s ability to compete in the downstream markets in these areas. This is because Z would continue to require access to terminals Mobil and BP own elsewhere, ensuring they would have countervailing power to constrain Z from substantially increasing the price for access to its terminals or reducing its quality of service.


Our assessment of the aviation market focused on the potential for Z to raise the price that airlines pay for Jet A-1 fuel at Auckland Airport. Post-merger, Z would take over Chevron’s supply agreements, reducing the number of Jet A-1 providers from four to three. Air New Zealand raised concerns that post-merger its supply of Jet A-1 would be concentrated in the merged entity.  

The Commission does not consider that the proposed merger would have a substantial impact on competition for Jet A-1. BP and Mobil have the ability to increase supply of Jet A-1 at Auckland Airport through increasing imports of Jet A-1 in Christchurch and Wellington, which the Commission considers would constrain Z from substantially increasing its prices post-merger. The evidence also shows that import parity pricing influences prices in this market.


The major fuel firms compete directly or indirectly (through their resellers) to supply diesel to bulk commercial customers, such as freight companies, bus operators or smaller clients like farmers. Our assessment focussed on whether the merger would allow Z to raises prices above the level that would prevail without the merger.

All of the major fuel firms have an established presence throughout New Zealand and have the ability to expand the amount of diesel they supply directly to bulk commercial customers. For these bulk customers, Z would be constrained by the presence of both BP and Mobil.

Truck stops

Each of the major fuel firms has a network of truck stops that span the country, though the locations of their truck stops vary geographically. At a national level and at different regional and local levels, Z would be constrained by the presence of BP and Mobil’s truck stop networks or one of Mobil’s related resellers, except in one local area – Kawerau.

Z and Chevron currently operate the only truck stops in Kawerau and, post-merger, local truck stop customers would have no alternative to the merged entity.

The divestment undertaking provided by Z remedied our concerns in Kawerau.


All marine fuel supplied in New Zealand is produced at the refinery and the market is best characterised as a bidding market, where customers play fuel firms off against each other so as to obtain competitive prices.

Given that Chevron is not a significant competitor in the supply of marine fuel, we consider that its removal from the market would not alter any existing market power held by Z. Post-merger, BP and Mobil would remain as alternatives to Z in the supply of marine fuel.


Bitumen is used in the construction and maintenance of roads and the production of asphalt. Both BP and Mobil ceased supplying bitumen in New Zealand a number of years ago, leaving Z and Chevron as the only two suppliers of domestically refined bitumen.

In its application Z submitted that Chevron intended to exit the bitumen market, leaving Z as the sole domestic supplier regardless of whether the merger was approved. The Commission accepts this would be the likely outcome without the merger. Some domestic customers also have access to imports.