ISSN 1178–2560 Decision Series Project no. 11.04/15357 Public version Determination Z Energy Limited and Chevron New Zealand [2016] NZCC 10 The Commission: Dr Mark Berry Sue Begg Anna Rawlings Dr Jill Walker (dissenting) Summary of application: An application from Z Energy Limited seeking clearance to acquire 100% of the shares in Chevron New Zealand. Determination: Under section 66(3)(a) of the Commerce Act 1986, the Commerce Commission gives clearance for Z Energy Limited to acquire 100% of the shares in Chevron New Zealand subject to the divestment undertaking dated 28 April 2016 provided by Z Energy Limited under section 69A of the Commerce Act 1986. Date of determination: 29 April 2016 2520350 2 Confidential material in this report has been removed. Its location in the document is denoted by [ ]. 2520350 3 Contents ACRONYMS AND ABBREVIATIONS ...............................................................................................5 EXECUTIVE SUMMARY ................................................................................................................7 THE PROPOSED MERGER ........................................................................................................... 14 SUMMARY OF THE PROPOSED MERGER ..................................................................................... 14 OUR DECISION ............................................................................................................................. 14 OUR FRAMEWORK .................................................................................................................... 14 THE SUBSTANTIAL LESSENING OF COMPETITION TEST .............................................................. 14 WHEN A LESSENING OF COMPETITION IS SUBSTANTIAL ............................................................ 15 WHEN A SUBSTANTIAL LESSENING OF COMPETITION IS LIKELY ................................................. 16 THE CLEARANCE TEST .................................................................................................................. 16 KEY PARTIES ............................................................................................................................. 16 Z ................................................................................................................................................... 16 CHEVRON ..................................................................................................................................... 17 OTHER MAJOR FUEL FIRMS ......................................................................................................... 18 NZRC ............................................................................................................................................ 19 COLL ............................................................................................................................................. 20 INDUSTRY BACKGROUND .......................................................................................................... 20 TYPES OF REFINED FUEL SUPPLIED IN NEW ZEALAND ................................................................ 20 THE REFINERY .............................................................................................................................. 23 PRIMARY DISTRIBUTION.............................................................................................................. 25 THE BORROW AND LOAN SYSTEM .............................................................................................. 27 WITH AND WITHOUT SCENARIOS .............................................................................................. 28 WITH THE MERGER ..................................................................................................................... 28 WITHOUT THE MERGER .............................................................................................................. 28 THE SUPPLY OF TERMINAL STORAGE FACILITIES ......................................................................... 28 BACKGROUND ............................................................................................................................. 29 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 29 MARKET DEFINITION ................................................................................................................... 31 COMPETITION ANALYSIS ............................................................................................................. 31 THE SUPPLY OF FUEL TO RETAIL CUSTOMERS THROUGH SERVICE STATIONS ............................... 35 BACKGROUND ............................................................................................................................. 36 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 42 MARKET DEFINITION ................................................................................................................... 43 COMPETITION ASSESSMENT – UNILATERAL EFFECTS ................................................................. 44 COMPETITION ASSESSMENT – COORDINATED EFFECTS ............................................................. 48 THE SUPPLY OF BITUMEN .......................................................................................................... 65 BACKGROUND ............................................................................................................................. 65 MARKET DEFINITION ................................................................................................................... 66 WITH THE MERGER ..................................................................................................................... 66 WITHOUT THE MERGER .............................................................................................................. 66 IS THERE A REAL CHANCE THAT CHEVRON WOULD CONTINUE TO SUPPLY BITUMEN ABSENT THE MERGER? ................................................................................................................ 66 THE SUPPLY OF AVIATION FUEL ................................................................................................. 68 AVIATION FUEL ............................................................................................................................ 68 PRODUCTION AND DISTRIBUTION .............................................................................................. 68 MARKET DEFINITION ................................................................................................................... 70 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 71 COMPETITION ANALYSIS – UNILATERAL EFFECTS ....................................................................... 71 COMPETITION ASSESSMENT – COORDINATED EFFECTS ............................................................. 82 2520350 4 THE SUPPLY OF PETROLEUM PRODUCTS TO COMMERCIAL CUSTOMERS ..................................... 83 BACKGROUND ............................................................................................................................. 83 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 85 MARKET DEFINITION ................................................................................................................... 85 COMPETITION ANALYSIS – BULK CUSTOMERS THAT PURCHASE DIRECTLY ............................... 85 COMPETITION ANALYSIS – BULK CUSTOMERS THAT PURCHASE VIA RESELLERS ....................... 86 THE SUPPLY OF DIESEL TO COMMERCIAL CUSTOMERS AT TRUCK STOPS..................................... 87 BACKGROUND ............................................................................................................................. 87 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 89 MARKET DEFINITION ................................................................................................................... 89 COMPETITION ANALYSIS ............................................................................................................. 90 THE SUPPLY OF MARINE FUEL .................................................................................................... 91 BACKGROUND ............................................................................................................................. 91 HOW THE PROPOSED MERGER COULD SUBSTANTIALLY LESSEN COMPETITION ....................... 91 MARKET DEFINITION ................................................................................................................... 92 COMPETITION ANALYSIS ............................................................................................................. 92 THE PROPOSED DIVESTMENT .................................................................................................... 94 ASSET RISKS ................................................................................................................................. 94 COMPOSITION RISKS ................................................................................................................... 95 PURCHASER RISKS ....................................................................................................................... 96 CONCLUSION 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