The Evening Star THURSDAY, NOVEMBER 5, 1931. PETROL.

Evening Star, Issue 20942, 5 November 1931, Page 8

The Evening Star THURSDAY, NOVEMBER 5, 1931. PETROL.

Within the space of a few weeks Parliament has had two documents on the subject of petrol supplies and prices submitted to it. The first of these was the report on motor spirit prepared by the Department of Industries and Commerce on instructions from the Prime Minister, and dated October 6, 1931. The gist of that document is contained in the following paragraphs:— Owing to financial interlocking of producing and refining oil interests, ifc is difficult to verify the f.o.b. costs shown on the companies’ invoices. There are indications that prices are fixed by the exporting organisation at a rate in excess of the market price at the date of shipment. To what extent the invoiced price is justified, having in view the cost of production and refining, is a matter on which the department cannot, with the. information ; available, express any definite opinion. This comment is* also applicable to freight rates, as each major oil company is associated with a company owning or operating a tanker snipping service. The marked spread between c.i.f.e. duty-paid . cost and ultimate selling price is duo to the following circumstances :—The competition for business between the oil companies and the resultant over-capitalisation of the system of distribution, exemplified by excessive terminal and other tank storage accommodation, excess number of pumps, and other distributing plant, an excessive number of retail distributors; heavy provision for depreciation. This is common to all the major oil companies. The object of the policy adopted appears to be to write down the capital assets of the companies as rapidly as possible. The. major oil companies act in agreement in regal'd to wholesale soiling prices and terms of sale, and. while there is keen competition for trade, there appears to bo no wholesale competition in price as between the major oil companies. The fixation ' of a uniform price by common agreement is, of course, an alternative to the fixation of a uniform price by force of competition. The circumstances arc such that differing price levels could not bo maintained, and uniformity of price must necessarily bo a feature of the trade. The main point of importance is the fact that the prices fixed by general agreement between the companies arc presumably reasonably satisfactory to each and every company. The fundamental advantages of bulk importation appear to a considerable degree to have been lost by the heavy costs of internal distribution resultant, in the main, from competitive over-supply of distributive facilities and organisation. The present oversea cost now represents only a small proportion of the total duty-paid cost to retail distributors. There is one main explanation of high distribution cost—the existence of 7,(54 pumps or bowsers, or ono pump to every twenty-nine motor vehicles in the country. The bulk of the petrol used in New Zealand comes from the Jnited States, but the second largest source, the Dutch East Indies, is rapidly gaining ground in tho dominion, imports from there having risen fr - m 1,500,000 gallons in 1916 to 19,675,000 gallons in 1930. Bulk shipments in tankers now constitute 82 per cent, of the total.

The report of the Select' Committee set up to investigate highways finance and the allocation of the petrol tax was presented to Parliament yesterday. It is far less complacent as regards the petrol position than the Department of Industries and Commerce appears to be, as the following extract indicates; — Tn the opinion of the committee, based on the evidence heard, there is a definite indication that petrol is a present-day necessity, and the (■■ nmimers in New Zealand are being charged too highly for the commodity by those who have control of the supply and distribution. As the committee cannot recommend the Government to undertake the conduct of this essential industry it recommends that the following protective measures be adopted by legislative enactment: — That the maximum selling price to importers in bulk at terminal points

bo fixed at 2d per gallon, plus tho import duty, above world parity price. That tho maximum selling price cx bulk tanks in New Zealand be tfco maximum buying price, plus 2d per gallon. (jjhat any financial person requiring lots of 200 gallons or more should have tho right to buy at these prices. As au alternative the committee suggests that a foreign corporation tax of at least 3d per gallon should bo levied on foreign corporations operating in Now Zealand. The evidence which tho committee .received show-, that the initial invoices and charges for freight, etc., have been manipulated, with tho result that tho national revenue has not received the income tax it would otherwise have received. In tho opinion of tho committee the suggested foreign corporation tax jnay produce the desired result.

Tliis is an attempt at price fixing which the oil companies arc likely to resent, 'possibly acting in concert over tho matter. Tho issue involved is considerable, Tiie dominion’s imports now exceed sixty-eight million gallons a year, valued at over two millions sterling. Far bettor than price fixing would bo tho introduction on this market of a local competitor, which, if successful, would ultimately moan the retention of a large sum of money in the country. Readers may have noticed a message from New Plymouth yesterday stating that a fierce fire at 3 p.m. considerably damaged tho derrick at tho Moturoa No, 2 oil well, near New Plymouth. Tho flames were fed by twenty barrels of petroleum stored in a cellar, and they ran right to the top of the high steel derrick, which had been plastered with crude oil from previous blow-outs, in Taranaki for some timo past motor vehicles, both commercial and other, have been running on the local oil, which is thus having a practical try-out before being put' on the market. There is. always the chance, of course, that the world concerns interested may preserve their monopoly by promptly buying out and closing down any relatively small venture as soon as it reaches producing point on a commercial scale. Even so, however, there is the possibility of competition from another local source. Tho carbonisation or hydrogenation of New Zealand coals, chiefly lignites, is soon to be begun on a big scale. Tho products of this process are smokeless fuel of great calorific value and fuel oils, both light and heavy, besides _ other byproducts. In this connection wo reproduce part of a recent symposium on tho British fuel problem by the Chemical Section of the British Association: —

If tho present consumption of gas and coke for domestic purposes vvfere doubled, the us© of ravy coal could bo almost abolished. This would entail the carbonisation of some 14,000,000 tons of coal in addition to the present quantity, giving an additional yield of 130,000,000 gallons of tar oils and tar derivatives. Most of /the smoke in the atmosphere would be removed, and the country would benefit from the increased production of oils. The average cost of producing one ton of flowing crude oil and blunging it to the surface of the eai th might bo estimated at one-quarter the expense entailed in mining and raising a ton of coal. That ratio would probably subsist for a number of years. At the vyoll head and tho pit head coal and oil were, virtually, tho raw materials of fuel. Coal needed little preparation for tho market. Oil, on the other hand, needed a complete range of treatment before it was available as a fuel. Moreover, by reason of the location of on deposits in areas which were often distant from centres of consumption, the element of transport, and its cost, often bulked somewhat largely in the price paid by tho'consumer. Ultimately, therefore, petroleum products were moVo costly, for equal weights, than coal; and since their value in terms of heat was greater a higher price had economic justification. In this country [Britain)] coal was cheap and plentiful, and its energy was available in. the form either of solid, fupl or of gas and electricity. Oil, therefore, had made little headway. Tho annual internal use in Great Britain of 1,000,000 tons of fuel oil was insignificant in comparison with a consumption of coal amounting to 170,000,000 tens. Moreover, that oil was chiefly used for special purposes to which coal was unsuited; and it was improbable that its consumption would greatly expand. A time would come —and it might not bo very distant—when teal and oil would bo marketed upon a basis of utilisable thermal units, vyi(h direct reference to tho geographical location of deposits in relation to centres of consumption, and they would bo consumed in manners which would extract the maximum thermal efficiency from each. It appeared possible, though not at present likely, to produce petrol by the hydrogenation of coal at a cost of 9d a gallon. Tho process could be established cm a large scale in this country only under the protection of a tax which would virtually exclude for many years tho competition of natural oil. Tho cost of producing heavy oil by hydrogenation was not likely to be much lower than tho cost of producing petrol. Eventually the relative demand of light oils and heavy oils must bo considerably modified. Ultimately, then, if not immediately, the competition of manufactured oil with natural oil must depend on the cost of production of heavy oil, not of petrol. Tho exclusion by taxation of imports of heavy oil into this country [Britain] would have even more serious consequences than tho exclusion of petrol from natural sources. But of the importance of encouraging further experimental work there could be no doubt. At tbo least the process could rightly bo regarded as a valuable insurance for tbo future.