ACCC inquiry should investigate why Brisbane has fewer petrol stations per capita than Toowoomba

With the closure of the Caltex on Benson St and the BP on Jephson St in Toowong in recent years, there are now only three petrol stations in a short drive from my flat compared with five around a decade ago. This is consistent with the historical consolidation of the petrol industry across Australia – from over 20,000 sites in the mid-1960s to under 7,000 sites today (see the chart below from the ACCC’s 2011 Petrol Monitoring Report).

No doubt the rising value of land is the major factor driving this consolidation, but I believe the factors underlying this consolidation require a thorough analysis in the new ACCC petrol price inquiry announced earlier in the week (see ACCC fuel probe promising: Hockey).

The ACCC should especially look at why the Brisbane market appears less competitive than other markets, including, somewhat surprisingly, the Toowoomba market – a point which earned some commentary in the 2011 Monitoring Report from the ACCC (pp. 179-180):

Monthly average prices in Toowoomba were always lower than those in Brisbane. The average differential over the period was 6.3 cpl, and it ranged from a low of 1.6 cpl in August 2010 to a high of 11.3 cpl in March 2011.

On the basis of the factors discussed in section 10.3.1, one would expect that retail petrol prices in Toowoomba would be higher than those in Brisbane. However, Toowoomba has a greater number of retail sites relative to its population than Brisbane.

In Toowoomba, on average there is one retail site for around every 1900 people, whereas in Brisbane on average there is one retail site for around every 4300 people. The greater number of retail sites relative to population in Toowoomba compared with Brisbane may lead to a higher level of competition—and hence lower prices—in Toowoomba.

This observation is consistent with comments provided by some major retailers to the ACCC in the last year about the intense nature of competition in the Toowoomba retail petrol market.

The Brisbane and Toowoomba petrol markets may provide interesting case studies for the ACCC to test its hypotheses regarding petrol pricing. I am particularly interested in whether the lack of petrol stations in Brisbane is due to high land values or issues in obtaining development approvals.

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