Why are Jersey oil and fuel prices higher than in the UK?
It’s a question we get asked a lot.
Many Islanders wonder why the four major fuel distributors don’t match UK prices or react quickly to global oil price changes.
So, we approached ATF Fuels, Channel Island Fuels Ltd (CIFL), Petroleum Distributors (Jersey) CI (PDJ) and Rubis Channel Islands Ltd (aka Fuel Supplies CI) for their comment.
It became clear that the calculation is far more complicated than many would expect. There are several misconceptions about how oil, petrol and diesel are received into the island, which the below should help dispel.
1). Oil is received and processed into the various products at La Collette.
No, it’s not. All imported products are already refined i.e. in the form of petrol, diesel or heating oil. The refined products come from various UK refineries, storage terminals or fuel depots.
2). How are the products received/delivered?
There are different methods. ATF receives its products in ISO tanks or trailers that hold the refined product. CIFL, PDJ and Rubis receive theirs in a large cargo ship that has compartments for the different refined products. The shipment of approximately 4 million litres is discharged into La Collette’s storage tanks.
3). All companies use the same products.
Rubis has two wholly-owned subsidiaries:
– La Collette Terminal which acts as a refined product storage facility for FSCI/RUBIS, CIFL and PDJ.
– Fuel Supplies CI (FSCI distributors – not to be confused with CIFL).
They import three types of fossil fuel: kerosene (heating oil), unleaded petrol and ULSD (ultra low sulphur diesel – which is then split into on car diesel and off-road vehicle red diesel for tractors and boats). Rubis has recently started importing a renewable diesel which is a 2nd generation bio-fuel. It is more environmentally friendly and more expensive than the ‘traditional’ fuels.
ATF also imports a bio-fuel and has a separate and independent supply chain.
4). Deliveries are once a week.
This depends on consumer demand. If necessary, ATF is able to receive supplies daily, whereas Rubis, on behalf of CIFL, FSCI and PDJ receive up to 15 large shipments a year, depending on storage availability.
5). The fuel companies are ‘racking it in’.
Each company must make a profit, but it’s far less than you would expect. Most of the price we pay is used to cover costs such as taxes, shipment, harbour dues (both in port and out – being stuck outside the harbour due to weather conditions costs approximately £6000 per day), storage, throughput fees for the use and upkeep of the La Collette Terminal, administration, overheads and on-island transportation, and then there are foreign exchange rates and charges.
Nick Cunningham, General Manager of PDJ explains, “The pricing of oil products is a dynamic and highly complex process…….. It is also behind in terms of world oil prices as we purchase our oil and it is delivered via boat and stored at La Collette, meaning market fluctuations (up or down) could have negligible or, might have a delayed effect on oil suppliers and consumers.”
The recent dramatic drop in global oil prices, which at one point appeared to go negative, understandably, sparked several enquiries from Islanders, for example: ‘Why are garage prices still high?’; ‘When will forecourt prices reflect the global market drops?’; ‘When will my heating oil be cheaper?’
The director of ATF Fuels, Jonathan Best, clarified why crude oil prices (in particular Brent crude oil), i.e. the unrefined product that is pumped from underground, do not correlate directly to refined products. “The prices recently published in the press were oil ‘futures’ contract prices i.e. not the refined products – this is the price refiners would pay that are contractually obliged to take [the] crude product. Crude prices do not take into consideration refining, storage and distribution costs. Brent crude is not the only crude oil refined in the UK, it can be imported from various locations”.
6). Why is there such a variation in forecourt petrol and diesel prices?
Again there are multiple reasons for this. One of the biggest being that each company has a different business strategy and operating model, including:
– high volume/low margin versus low volume/high margin
– some companies own the forecourts and others rent them
– some have a loyalty discount card, others don’t
Every other week, we contact a selection of garages to obtain their forecourt prices. These are uploaded on to the FuelWatch website, giving you a snapshot of that day’s prices. The prices include GST, but do not take into account any loyalty schemes. The oil prices of the four distributors are updated every week on the same site.
So, the big question is, will consumers see a reduction in prices?
Nick Crolla, Head of Sales & Marketing at Rubis, advised us that before BREXIT happened on 31st January 2020, Rubis took the decision to fill their storage allocation at La Collette Terminal, to ensure supply was on the island and avoid any major price increases the BREXIT outcome might have. The stock received was at the December 2019 and January 2020 prices.
Due to the COVID-19 pandemic, the crude market has collapsed and PLATTS ( the refined product market) has also been hit. The tanks will be ‘topped up’ with the now lower priced product and, as always happens, the average cost of the full tank will be calculated and passed on to the consumer.
Of course, the other effect that COVID-19 is causing is the fact that fuel consumption is at its lowest for many years (down by approximately 65%), so the tanks are not emptying as quickly as usual, therefore the cost is not dropping as quickly as we would like. We’ve been assured that this is the same when the price goes up, even though the perception is it goes up quicker than comes down.
The current global situation can be broken down like this:
– Crude oil is still being taken out of the ground.
– Usual storage facilities are full, so crude oil is being held in supertankers and they’re filling up quickly.
– Global aviation sales (JET A1) have stopped, heating oil (Kerosene) sales are at their lowest due to seasonal effects and petrol & diesel sales have drastically reduced due to Government advice to only travel is necessary.
7). Why are Jersey prices so much higher than UK prices?
– UK fuel duty has remained fix since 2011, whereas Jersey fuel duty rate has risen from 42.93 to 56.55 (a 13.62ppl increase) in the same period, with a particularly high increase of 6ppl in January (it’s usually between 1-2ppl).
– 5% GST is then added
– costs of shipping the refined products to the Island
– Jersey doesn’t benefit from the same economies of scale achieved by UK distributors/retailers e.g. Certas Energy, the largest UK independent distributor, delivers approximately 6 billion litres a year, roughly 60 times the entire Jersey demand.
– the UK Government COVID-19 furlough scheme applies to the UK Fuel Industry, enabling distributors to significantly reduce their fixed cost. This doesn’t apply to distributors in Jersey.
We hope the above information has helped explain the challenges and complex pricing calculations that these companies face, and provide some comfort that consumers are not being, for want of a better term, ‘ripped off’.
Nick Cunningham (PDJ): “With the unfortunate COVID-19 situation occurring at the same time (and as part of the reason for the current global oil market price drop) we also have to build in contingencies to ensure our customers are provided the services they deserve whilst ensuring our business is sustainable past these events; securing the safe employment of our teams”.
Jonathan Best (ATF): “The impact of having drastically reduced sales volumes means that although we have the same fixed cost base as we did before the onset of the COVID-19 pandemic. The ability/opportunity to pass on any reduction in prices (where it exists) is impinged, as we have a requirement to continue to provide a service whilst gainfully employing people. This is obviously a balancing act, one which we believe that we are doing to the best of our ability”.
We also approached Channel Island Fuels Ltd (CIFL) and await their reply.