Minister goes after ‘Big Oil’
Claiming Cayman Islands residents have endured uncompetitive and inflated petrol prices for too long, Planning Minister Kurt Tibbetts warned gas and diesel distributors that they must turn over their operational cost data to government or face fuel price control legislation.
“No longer can we turn a blind eye to what is taking place in the local fuel market,” Mr. Tibbetts said in the Legislative Assembly on Thursday.
He said a Public Utilities Commission Bill, seeking to require petrol distributors to reveal what they pay for bulk fuel shipped to the Cayman Islands and their markup on fuel, will be presented to the Legislative Assembly at its next sitting, provisionally set for late September.
Historically, fuel companies Esso and Chevron-Texaco, and more recently operators Sol Petroleum and Rubis have refused to release such data, saying it is proprietary commercial information.
Mr. Tibbetts said government regulators must have a clear idea of what the companies are charging local retailers for fuel before they can make any assumptions about “fair” local prices at the pump.
In addition, Mr. Tibbetts said regulators must have that data to determine whether Cayman’s two oil distributors are actually in competition with one another.
“If it is determined that the market is not competitive, as I suspect it will be, then the government will promote and ensure effective competition,” Mr. Tibbetts said. “If these measures fail to ignite price competition amongst the participants … then the government’s next step will be outright market price regulation.”
Price control legislation for local retail gasoline and diesel fuel is something petroleum distributors have long warned the government against, stating that it could lead to fuel shortages in the market.
In January, Alan Neesome of Sol Petroleum urged the government to reconsider taking such a step.
“In a regulated market, the regulator [government] must guarantee a reasonable return to the regulated industry,” Mr. Neesome said. “Sol shares the government’s objective of making fuels available at competitive prices, and the current free market in Grand Cayman is undoubtedly accomplishing this objective.
“Pump pricing here overall [has] decreased substantially, in line with international pricing, whereas prices in other jurisdictions in our region, especially those with regulations, are in many cases higher when compared to the equivalent price per imperial gallon for the same product.”
Mr. Tibbetts has previously argued, and did so again on Thursday, that local gas prices seem to the general public to be operating – as the old saying goes – “up like a rocket, down like a feather.” In other words, Mr. Tibbetts said, the general public’s view is that oil prices tend to go up swiftly when a worldwide price increase is noted, but tend to fall very slowly when the reverse is true.
For instance, when U.S. fuel prices began a precipitous drop in June 2014 that lasted through the end of the year, it was mid-October before fuel prices in Grand Cayman saw a significant decline. When asked at the time, local retailers said the bulk fuel they were receiving from distributors was being priced at the same level it had been in June.
More recently, regular unleaded self-serve gasoline prices have gone up by an average of about 60 cents to 65 cents per gallon since mid-March, a Cayman Compass examination of retail prices shows.
The average price at retail stations, which had dipped to $4.15 per gallon by March 18, was about $4.75 to $4.80 per gallon in early August, according to the latest figures provided by the Cayman Islands Petroleum Inspectorate.
The U.S. retail petroleum market has seen a marked increase in gasoline prices since January, but in late July and early August, prices at the pump started falling again.
Fuel prices in the U.S. rose to an average of US$2.42 as of March 23. In mid-July, the U.S. national average for unleaded gasoline was $2.77. As of Friday, that average had fallen to US$2.65 per gallon.
Meanwhile, the average price per barrel of Brent Crude, an international oil price benchmark, has dropped since mid-May, dipping to just below US$50 last week.
Comparisons between U.S. and Cayman retail prices are largely inconsequential, fuel distributors have argued.
“The USA is a macro market with totally different supply logistics, vast fuel resources, huge fuel storage capacity, a network of pipelines from the refineries to the distribution points, and trucking fleets which deliver fuel 24 hours per day, 365 days per year,” Mr. Neesome said. “The USA’s scale of operations provide efficiencies in fuel distribution that Cayman does not obtain as we have much higher unit infrastructural and operational costs, which result in higher prices to consumers than in the U.S.”
Mr. Neesome added that Sol Petroleum usually receives fuel shipments about every four weeks and that cargo may have loaded on the supply ship several weeks before arriving here. This delay creates a lag in pricing compared to current international prices, he said.