In the context of the Regulatory intervention, an in-depth study of the petroleum industry in Greece and of the relevant institutional background was carried out. In particular, this study included a thorough analysis of the competitive conditions in the relevant markets and of the structure of the petroleum product market in all stages of the production and distribution chain (refining, marketing, retailing) and sought to identify any barriers to market entry and/or development. Furthermore, a relevant analysis was carried out on the evolution of demand, the prices of the three products (95 octane unleaded petrol, diesel and heating oil) over the period 2019-2022, as well as  on the refining or crack spread, namely the difference between the purchase price of crude oil (input) and the selling price of final refined product (output). The development of trading and retail prices was then presented, as well as the corresponding retail margin for the same period as above. Subsequently, an analysis of activity, trade flows and efficiency of the refining and marketing companies over the period 2019-2022 was carried out both at a company level overall and with regard to each product. The aim of this assessment is, on the one hand, to look into the supply chain profits for each product as well as on the whole range of their activity and, on the other hand, to assess the increase in the companies’ revenues and efficiency in relation to the domestic sales of the three products under consideration or to other factors.

Furthermore, the study examined price pass-through from the Platts price to the refining price for each product, from the refining price to the wholesale price at the territory level, first by extending the pass-through assessment scope and the asymmetry check that was analyzed in the Mapping context, both temporally and geographically (including, in addition to the Prefecture of Attica, the Prefectures of Thessaloniki, Heraklion and Achaia), i.e. the most populous prefectures of Greece. All the above were examined together with the analysis of issues regarding the mechanism of pricing policy and the parameters shaping it, emergency stock requirements, in conjunction with trade flows (imports-exports) in the individual stages of the production and distribution chain and the availability of storage facilities, as well as relevant utilization processes. Finally, the operating efficiency and profit margins of the companies active in the relevant markets were analyzed.

The refining stage shows a prevalence of duopoly conditions, with a high degree of concentration. The price determinants for domestic sales of each product (in particular Platts price, tax and other charges and US$/Euro exchange rate) are common to both companies. The key-role seems to lie with the price of the Platts MED index by oil product. The analysis of the refining prices revealed an alignment (with marginal price differences between the two companies in the fourth to fifth decimal) and a parallel evolution of prices. Furthermore, in both periods under consideration, refining margins increased, even though there are opposite trends in the movement of crude oil and end products (gasoline and diesel) prices between the two periods of reference. Despite the increased refining margin resulting from the first shock, refining companies did not show operating profits throughout 2020, which is largely a result of the limited demand, due to the pandemic, and, by extension, of the limited production of end products by refining companies, in relation to their high fixed production costs. On the contrary, the increased refining margin of the second shock led to significant operating profits for refining companies, as it was accompanied by a relatively increased demand (compared to the 2020 fiscal year) and, by extension, a relatively increased production from refining companies, with price increases over time. The companies’ relative extroversion is also taken into account in this analysis, as they carry out a significant part of their sales in foreign countries, however, regarding the products under consideration, in general, a higher revenue per unit from domestic sales is obtained for each company, compared to the corresponding average revenue of their exports.

The installed production capacity, which exceeds the needs of the domestic market, combined with the downsizing of the industry (worldwide), over time act as an entry barrier to new entrants. At the same time, there are also several other barriers to entry, such as high capital requirements and sunk costs for the development of the necessary production facilities, unforeseeable profit margins characterised by very high volatility, future prospects of further narrowing the market in question at international level, as well as domestic institutional factors, such as the established lengthy and demanding licensing procedures and the obligation to maintain emergency stock.  

Imports do not appear to exert significant competitive pressure on refiners. It would appear prima facie that the need to maintain emergency stocks may create barriers to imports for independent traders. Companies meet their needs through (co-)storage and service contracts, which could reduce the intensity of competition between them or create bottlenecks, especially in island regions of the country. Imports could provide trading companies with alternative sources of supply, while exerting competitive pressure on refiners. The absence of imports combined with restrictions on storage facilities and increased stocking costs constitute barriers to entry/expansion that impede effective competition.

The observed asymmetric pass-through (for diesel in the first period and for unleaded 95 gasoline and diesel in the second period, where Platts index price increases are passed on more to gasoline and diesel refinery sales prices than the respective reductions), combined with refiners' high profit margins and the choice of specific pricing factors and the extremely low competitive pressure due to limited imports, confirm the ability of refiners to profitably increase their prices without being appreciably affected by the actions of their customers or be constrained by potential competitors. In particular, considering the pricing factors of trading companies from refiners, it becomes clear that the latter hedge at least a significant part of their risks (such as exchange rate volatility and crude oil purchase price/cost volatility,) and pass it on to their customers, which have no alternative source of supply. It is noted that refining companies generate more revenue from sales in the domestic market than from exports.

At the wholesale stage, the market is characterised by a moderate to low degree of concentration, where active companies seek to strengthen their competitiveness through the promotion of alternative differentiated products, service provision as well as the general exploitation of their brand. Customers (fuel retail stations) do not make direct purchases from refineries, nor imports, consequently they have no alternative sources of supply. Therefore, the bargaining power lies with wholesalers, which in turn are constrained by the lack of alternative sources of supply at the refining stage. Barriers to entry include high degree of vertical integration in combination with economies of scale and scope, shrinking of the small Greek market, intense delinquency, difficulties in importing petroleum products by trading companies, due to the existing emergency stock requirements, the restrictions linked to storage facilities licensing. Finally, it is noted that trading companies’ profitability in terms of gross profits shows a limited range, with relatively slight variations over time and marginally positive operating profit margins. 

The difficulty in finding an alternative source of supply through imports results in the inability of trading companies to exert pressure on refiners and thus in the ability of the latter to sell their products at increased prices, which constitutes a structural barrier to the entry or expansion of the refiners’ competitors, or even to exerting pressure on behalf of these customers. Therefore, the inability to import combined with restrictions on the licensing of storage facilities, but also the increased costs of emergency stockholding, are factors that have restrictive effects on competition. Regarding storage facilities for the three products considered, it is noted that there are geographical areas within the domestic market where only one company maintains a storage facility. This fact can make fuel storage particularly difficult in insular Greece. In some cases, co-storage and pooling contracts can resolve storage limitation issues, however it is observed that some of the co-storage contracts include exclusivity agreements which may, in certain circumstances, create conditions of non-effective competition, as they limit the access of interested third parties to storage facilities, which is essential to their further business activity, in particular in insular or remote regions where storage facilities are, in any event, limited in number. 

At the retail stage, 6,117 gas stations are active, and 5,825 of them are branded while the rest of them operate as independent gas stations. Barriers to entry at the level of retail supply include the amount of investment needed to set up a gas station, low profit margins and delinquency (fuel adulteration). Also At the retail stage, respectively, imports could constitute alternative sources of supply for trading companies, exerting competitive pressure on refining companies. 

The absence of imports combined with storage facilities restrictions and increased stockholding costs constitute barriers to entry/expansion that limit effective competition.

The full text with the HCC’s views published for public consultation is available here.

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The above text will be open to public consultation until 15.10.2024.

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