THE largest gas retailer in the island, Shell Companies of Jamaica, has said that a mix of escalating prices and harsh economic conditions is forcing industry players to look at new ways to boost market share.
The news comes as Shell is expected today to launch a new fuel product aimed at the Jamaican market.
Shell said it has invested US$1.5 million bringing its new premium product V-Power to Jamaica.
Speaking exclusively to the Financial Gleaner, Shell Companies of Jamaica chairman Nick Shorthose said: "At this point in time, demand for fuel in Jamaica is at best flat. From the first quarter (Q1) to second quarter (Q2) gasolene sales at retail sites in Jamaica have dropped by 2.8 per cent a quarter which is significant.
"The major factors determining this are macro economics and rising prices. People are coming in to the stations and asking for $500 worth of gas and getting less for their money and obviously they are not happy with that. What is worrying is that world prices are falling and you would expect demand to return but this has yet to materialise."
Mr. Shorthose added:" The Jamaican motorist is not that interested in the environment frankly. What we found is that they are interested in raw power. Jamaica is unusual in the Caribbean in that it is a mixture of urban driving and country runs. They want responsiveness when overtaking and reliable fuel quality which has a lot to do with additives.
"So we went away to Europe more specifically, Hamburg, Germany and Chester, England and developed a fuel specifically for Jamaica. People say why go to those lengths but the Jamaican market is very important to us because we are market leader and have the volume. Petcom and National can't do this because they haven't got the technical backup.
The new fuel product has a number of characteristics. It is ultra clean with a filter at the pumps. It possesses an additive that not only keeps the engine clean but cleans up the engine as it performs."
Jamaica currently has two levels of base fuels octane 87 and 90. For better performance vehicles 90 is used with 87 proving to be a basic driving fuel.
An examination of how fuel is costed gives an indication of the operating dilemma presented to the fuel retailers operating in Jamaica.
The state-owned refinery, Petrojam buys fuel at approximately US$31 a barrel(bbl) from regional suppliers, most notably Venezuela. Petrojam in turn charges retailers $17 a barrel essentially to operate the refinery.
Compared to Trinidad's state owned refinery, Petrotrin, which is considered a better refinery in terms of scale and efficiency with the capacity to supply low sulphur diesel, the Jamaican outfit proves more costly. Then there is $28 a barrel tax with transportation and marketing cost at $8 a barrel. The dealers who run the forecourts margins come up to $5 a barrel.
Therefore what customers at the pump are really paying is $89 a barrel.
This situation is further compounded by the cost of lost product as a result of the refinery fire and lost of tax which it is estimated will add another $76 on a barrel of petrol.
Movements in the West Texas Index (WTI) which determines crude prices in the US, though a factor, proves of little significance because the sum at the pump remains fixed and so demand is not shaken by external prices. The overall picture in Jamaica is one of demand being flat at best if not declining with the macro economic situation impacting significantly. Of particular concern is taxation and a devalued currency hindering operating conditions.
Jamaica finds itself with a deregulated market with new volume players notably National and Epping establishing themselves. Many gas retailers are seeing the networks stabilising or declining with only the better sites making money.
Both National and Petcom are still building sites with the strategy being one of focusing on volume whereas Shell, Texaco and Esso are being cautious largely due to noting a contraction in the industry worldwide. The larger international retailers see environmental concerns becoming a bigger factor in scaling back operations.
This is the one issue they see which will force them to close sites in the long run. As yet environmental awareness has not taken a hold of the public consciousness in Jamaica but that may change in the foreseeable future.
Mr. Shorthose explained the operating benchmark cost by which the larger players have to live by.
"We have something called "the end of the world scenario by which every thing from the refinery gate to pump price has to be considered and we have to learn to live at less than US5 cents per litre. At the moment between ourselves and the dealers we are at 7.3 cents per litre.
"Now this is where people start hurting. What we are seeing from Portmore coming down to Kingston is margins coming down and that's why we at Shell have to start focusing on operations and do something different."
What has happened since liberalisation is that the new market players have increased by 20 per cent. Shell is still market leader but both Petcom and National are growing.
"Each of us has responded in different ways. Esso has a very clear strategy of using it shops to generate retail business. They are pricing their fuels uncompetitively, hence their higher prices. National has a clear view that you have to be competitive and operate at 4 to 5 US cents per litre. They have very little overheads.
"Neville Marsh of Epping is still pricing high but targets intuitive customers. Texaco is big on promotions and they use product offers to entice customers. Shell goes for product quality and consistency of the brand which means that we are driven by market forces but have to continually improve what we offer," Mr. Shorthose further added.
