The price of petrol is largely down to the voter

I observe a number of discontented rumblings about the price of petrol. No doubt we’re going to soon see “the govt doing something”. Especially if that is what “the polls” signify.

Like many of the problems we have today, the high price of petrol is really down to the electorate, who for years have voted for policies, parties and politicians who in spite of their professed concerns, have upon election unremittingly pushed legislation that has increased the cost of the process of finding oil and getting fuel to the pump.

Here are some of the main factors that keep fuel prices higher than they need to be-

1) Lack of competition caused by big oil companies endorsing govt actions that make it hard for smaller companies. In other words cronyism. False capitalists in bed with socialists.

2) Environmental regulations. Probably around 30% of the cost of drilling for oil and getting it to the pumps. The public voted for these.

3) Over zealous workplace health and safety rules. These probably account for another 20% of the costs.

4) Regulatory burdens relating to licensing. Probably 10% of the costs. Also so high as to dissuade many smaller explorers, therefore an even worse driver in that they reduce competition.

5) Maori title. Oil companies are generally quite happy to deal with the real landowners, however concepts like “traditional landowners” are bunkum that adds probably around 10% more to the cost of oil.

6) Normal operations such as drilling, extracting, transporting, refining, shipping to service station pumps so you can put it in your car, probably about 30%.

So if it costs $100 dollars to produce a barrel, I would estimate the costs to be roughly as above in dollars for every 1 percent.

Then we have the price at the pump, which is inflated by the producers and retailer’s margin and taxes. Govt takes near enough to 45% of the retail price. Profit margins are another say 10%. (being generous)

So if the price of a litre of fuel is $2, then already 90c is taken by the govt. Another 20c is profit. Leaving 90c as the cost. But as we see from my above estimates, 70% of this goes on extra expenses basically resulting from regulations that the electorate has voted for, and this works out to about 63c.

So if you do a rough analysis of all of the above figures, you find that $1.53 of a $2 per litre purchase price is spent complying with government regulations and taxes. That’s about 77% of whatever the purchase price might be at the pump.

A polite message for the electorate at large- Please don’t complain about the price of petrol when its the politicians you have voted for who are behind most of the cost.



Categories: Economics

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