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What future petrol price will be - Z Energy boss

In 10 years, oil will sell for about $US80 a barrel and petrol will be $2.30 per litre at the pump, oil man Mike Bennetts predicts.

The oil and gas industry shifts quickly. Look at the money being poured into alternative energy projects when the global financial crisis hit, which is now tailing off, and the global energy ripples caused by the expansion in US shale gas production.

Talking to NBR ONLINE after a recent lecture at University of Auckland University's Business School, Mr Bennetts said the oil price will be lower but the petrol price at the pump will be higher, because roughly half the price of petrol is in taxes and there may be a carbon tax in place.

In 10 years, crude oil will be trading somewhere between $US60 and $US90 a barrel, he predicts, with his pick at about $US80.

Factoring in New Zealand’s exchange rate and taxes, he thinks petrol will be about $2.30 a litre at the pump.

He says it won't hit $3 a litre unless there’s some form of discontinuity, where carbon gets priced at a particularly aggressive level. "I think the underlying commodity price is likely to be in the $US60 to $US90 a barrel range.”

Z Energy has two high-profile alternative energy projects (read more in Friday's National Business Review print edition), but he told NBR ONLINE there will not be a material amount of alternative fuels in the petrol market.

Mr Bennetts is not yet convinced of the economics of alternative energy – and he thinks it will be 15 years before electric cars really find their feet, commercially.

But he says he believes climate change is influenced by human activities and vows Z Energy wants to help reduce New Zealand's reliance on fossil fuels – the very product Z sells – and make gains through improved margins.

Z has 12 pilot projects to reduce the fuel consumption of trucking firms, but for that service it will demand a premium price on what is sold.

Even if the trial is expanded and Z builds a $15 million biodiesel plant producing 20 million litres a year, that's a drop in the roughly 2.5 billion litres of transport fuel the company distributes and sells each year. 

He's not a believer in peak oil – “I think there’s enough evidence that says things are fundamentally changing around the supply side” – and he sits on the sideline with fracking, saying:

“Personally, I don’t know enough about fracking and I feel really disappointed it’s not a well-informed debate."

Z by the numbers
Z Energy, originally Greenstone Energy, bought assets from Shell New Zealand in 2010, and 60% of the company was sold in August’s IPO, leaving 20% each for original shareholders Infratil and the New Zealand Superannuation Fund.

In the intervening period the company has had a slick rebrand and substantial investment in its service stations.

The company has a 17.1% stake in Refining NZ, which runs the country’s only oil refinery, a 25% stake in Loyalty New Zealand, which runs Fly Buys, it has 211 retail service stations and 94 truck stops, as well as pipelines, terminals and bulk storage infrastructure around the country.

Z distributes and sells about 2.5 billion litres of fuel a year.

Dual-listed Z Energy’s offer price was $3.50 a share, with 60% of the company being sold. It was tipped as a good earner by market analysts.

At Friday’s market opening, Z shares (NZX: ZEL) were trading at $4.01, an increase of 14.6% since listing on August 19.

In the year ended March 31, its retail fuel volumes were down 7% on the previous year, on improved margins. Its market share on all products declined below 30%.

After-tax net profit slumped to $35 million, down $42 million on 2012.

More by David Williams

Comments and questions

And why not, I say. After all it is the modern 'economy'......where first you set the executives' salaries...with input from those wonderful remuneration consultants....and then, bugger demand, you fix the price to bridge the gap. Simple economics, really.
Hell, the govt doesn't mind either; it's more GST for them.
Life is great, eh.,

He might be right on the commercial viability of electric vehicles (EV), who knows? I'm unsure whether he was meaning globally or just New Zealand there?

But I'd love to know what he thinks about the Netherlands decision to roll out EV fast charging stations (by the end of 2015) throughout the country so that no one in Holland will be more than 50km from the nearest charging station? These use DC current (allows rapid charging) and can charge an EV in 15-30 mins. Is a 15 year time frame for the commercial viability of EV being too conservative?

I suspect he is wrong on electric cars. Tesla has set the bar very high for high performance vehicles with decent ranges. The Volts and Leafs will simply have to catch up both in looks and range or be pushed to one side. Electric cars are here now and widespread takeup will occur as phobias and bias are examined technically rather than emotionally.

Very interesting reading the comments from the historic article (linked above) regarding Shell's re-branding to Z and how most of the sentiment in the comments section is that it is going to be an 'epic failure' and 'I can't wait to watch this explode' etc. etc.

Now with 2 and a half years of hindsight and Z's numerous successes in the meantime I think it would be fair to say that the average NBR commenter knows as much about business strategy as a pig knows about Sunday....

In 2000 the global oil and gas industry spent roughly $150 Billion on exploration and production. This year it will be closer to $700 Billion, a greater than 4 fold increase in 13 years. Even allowing for inflation it is clear that the industry is having to run faster and faster just to stand still. Given the massive cost increases I think Mr Bennettts predictions are in cloud cuckoo land.

Ummmmm... a large portion of the price of fuel is Taxes and a portion of that is carbon tax?
So the government collects the tax, and it is spent on what??? Who gets the carbon tax money? and what is it spent on? What does the rest of the fuel tax get spent on???