Editorial: The War of the Petrol Pump
While governments and the big oil combines jostle for control of the oil resources of the world a second front has been opened up on the British home market With the ending of war-time controls the companies were allowed on 1st February of this year to resume the pre-war practice of selling their own branded high grade motor spirit alongside the continued sale of the lower-grade and cheaper “pool” petrol.
They had been preparing for this revival of competition for many months, partly by extensive advertising and partly by getting garage owners to enter agreements binding them to sell only certain brands.
Before the war the petrol companies spent about £600,000 a year on newspaper advertising. In 1951 the amount was £641,500 but in 1952 it rose to nearly £1,000,000 (Manchester Guardian 31 January, 1953).
On the control of garages the Financial Editor of the Manchester Guardian writes:—
“For at least two years the petrol companies have been making their preparations. More and more garages have made exclusive arrangements with one or other of the main petrol companies. Garages have been rebuilt and repainted, in return for which they have agreed to sell one company’s petrol only. Nearly three-quarters of the country’s pumps are now said to be tied in this way.”
The motoring correspondent of the Daily Telegraph (11/3/53) puts the proportion of “tied” garages as high as 90 per cent.
In some cases the “tied” garage undertakes to sell only one company’s petrol, but as Shell and Anglo- Iranian have a joint selling arrangement (Shell-Mex and B.P.) their agreements tie the garage to supplies from Shell or Anglo-Iranian refineries (Economist, January, 1953).
One by-product of the struggle is that in order to protect their “tied” garages, some of the companies are reported to be refusing supplies of petrol to independent garages in the same district.
In addition to advertising, the companies are also wooing trade with “gifts.” Miss Burton, M.P., informed the Minister of Fuel and Power on 9 February that Shell are giving away a brush and duster “with a retail value of at least 5/-”; countered by the Regent Company’s presentation of jigsaw puzzles and propelling pencils.
The war also extends to lubricating oils and the Vigzol Company which specialises in supplying farms complained that “some national oil companies . . . are offering ludicrous enticements to break up strong links we have developed with dealers for 30 years.” The head of the firm states that the petrol companies are giving agricultural engineers commissions of up to £5 a barrel on lubricating oil to get business (Daily Express, 22/11/52).
A writer in the Sunday Dispatch (18/1/53) says that altogether the battle for the petrol market has cost the companies several million pounds already.
Although the companies are competing for the general market they are still (or were until last year) submitting identical tenders for sales to the government.
The four largest competitors (in addition to some smaller ones) are Shell, Anglo-Iranian, Esso and Regent. Anglo-Iranian has government nominees on its board and the government owns a large shareholding. Shell is linked with Royal Dutch and they, like Anglo-Iranian, control oil concerns in many parts of the world. Among the Royal Dutch-Shell subsidiaries is a large concern operating in the U.S.A.
Esso is a subsidiary of the American Standard Oil but sells motor spirit refined in this country. Regent sells imported petrol from refineries abroad operated by Trinidad leaseholds. The National Benzole Co.’s products are a mixture of petrol with benzole, the latter derived from coal.
The general background of the petrol war is of course the enormous development since the end of the war of the oilfields, refineries and oil tanker fleets, so that although world consumption has increased fast there have been several scares in the past seven years that production would overstep demand. It has been noted with concern that America, which produces and consumes much more than the rest of the world together, increased its consumption in 1952 by only 3%, compared with 10% the year before, and in the meantime more and more refining capacity is coming into production.
In Britain oil refining capacity in 1945 was only 2,500,000 tons of crude oil a year. It is now over 20 million tons and when work is completed on refineries now building it will be over 30 million tons. (“The World Oil Industry.” Financial Times Supplement, 2 February, 1953).
What this development will involve can be seen from the fact that in 1945 three-quarters of Britain’s refined oil was imported. Now it is an export, and the Minister of Fuel states that in 1953 it is expected to exceed in value the export of coal. When the full refinery programme is completed there will be an urgent need to find world markets for the great quantity being produced.
The particular background of the “branded petrol” war is the “catalytic cracking” plants which produce the high-grade motor spirit. The six plants built or building will have cost £20,000,000 by the time they are all in operation. But here, according to the Financial Times (31 January, 1953) the real problem arises. By mid-1953 their output capacity will be about 54 million tons, but even the present output of 3½ million tons “should be ample” for the existing demand for high-grade petrols.
“Thus, assuming that the refineries settle down to a rate of operation of about 75 per cent. to 80 per cent. of capacity, the potential volume of supplies of British refined premier grades is more than adequate.”
The problem then is for the companies to expand the sales of the high-grades by persuading the commercial users of motor transport that they, as well as the private motorist, should use the higher-priced, “premier” grades.
“Indeed it seems that unless the demand for premier grades expands considerably compared with pre-war the oil industry will find it hard to justify the whole of its investment of £20 million in the post-war catalytic crackers.”
The Financial Times concludes that the companies will “only obtain the full return on the large amount of capital invested in the catalytic crackers” if they succeed in getting the commercial motor users to change over to the costlier petrols.
What adds fierceness to the conflict is that American controlled Esso, with its giant refinery at Fawley (the largest in Britain), is challenging the other large companies. Before the war Esso had only a small share of the British market and is fighting to enlarge it in order to find a market for the output of Fawley. The Cleveland Petroleum Co. also sells petrol bought from Fawley.
The outcome of the battle cannot yet be known. When it is there will be rich prizes for the victors and falling profits for the losers—and nothing for the working class either way.