Oil Distribution Merger Under Competition Commission’s Scan

Jack Humphrey, Regulatory journalist
April 09, 2012 /

The OFT has referred to the Competition Commission the completed acquisition by DCC Energy UK Limited, which operates GB Oils, of a number of businesses previously owned by Total Downstream UK plc, including the Total Butler oil distribution business.

This transaction is one of a series of related transactions which the OFT has examined in the context of Total Downstream UK exiting from downstream retail supply and distribution operations.

GB Oils and Total Butler both supply oil products, including heating oil and transport fuel, to a range of domestic, commercial and agricultural customers in the UK. Each has a sizeable network of oil depots in England and Wales, numbering over 100 depots in the case of GB Oils and 40 for Total Butler.

The OFT is concerned that the merger would remove a key competitor to GB Oils in the supply of oil products to customers that require deliveries across multiple sites, but whose volumes are too small for them to be viably served by the major oil companies or by oil traders. For most commercial customers requiring multiple site non-bulk deliveries, the strength of a supplier’s depot network is important when choosing who they should purchase from.

The OFT’s investigation found that the breadth of Total Butler’s depot network meant it was a close competitor to GB Oils. The alternative options available to multiple site non-bulk customers – including using a number of smaller firms across different areas – would not be cost effective and would therefore be insufficient to prevent the merged firm from raising prices; nor are firms that themselves subcontract to other suppliers to provide geographic reach a sufficiently strong competitive alternative.

The OFT’s investigation also considered the possibility that competition in local areas might be reduced for the supply of oil products to local customers. Given the OFT’s findings on supply to customers requiring multiple site non-bulk deliveries, it did not need to conclude on this point as this issue can be considered by the Competition Commission in its investigation.

Amelia Fletcher, OFT Chief Economist and Decision Maker in this case, said: “Although there are a large number of oil distributors operating in the UK, three of them stand out in terms of the scale of their networks: the two merging parties and Watson Fuels.

“A significant number of multiple site non-bulk customers who need suppliers with access to such infrastructure were concerned at the prospect of a merger of GB Oils and Total Butler. We consider that the Competition Commission should look in detail at the impact of the merger on these customers, as well as whether the merger may result in higher prices for customers buying oil products in specific local areas where the parties overlap.”

The Competition Commission is expected to report by 18 September 2012.

The Competition Commission may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

 

Share your opinion