Evaluating Government Intervention in the Australian Petroleum Market

This essay examines the Australian petroleum market, highlighting the significant role of the petroleum industry in the country's economy. It emphasizes the need for government intervention to prevent market manipulation, particularly during volatile international oil price fluctuations. The analysis covers various government interventions, such as regulations, subsidies, and taxation policies, aimed at correcting market failures and promoting economic fairness. The essay also discusses the impact of fuel taxes, subsidies, and the government's FuelWatch app on petrol prices and consumer behavior. It concludes that while government intervention can lead to increased stability and transparency in petrol prices, it's crucial to strike a balance to avoid stifling competition and negatively impacting consumer welfare. The availability of resources like this assignment and solved papers on platforms such as Desklib can greatly aid students in understanding these complex economic concepts.

Running head: AUSTRALIAN PETROLEUM MARKET
Australian Petroleum Market
Name of the Student
Name of the University
Author Note

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AUSTRALIAN PETROLEUM MARKET
The petroleum industry in the Australia is one of the highest contributors in
the world. Australia has about 257 trillion cubic feet of the resources of gas
(Valadkhani and Smyth 2018). The petroleum industry of the Western Australia is
also one of the largest contributors of most of the petroleum goods. The government
should continue to intervene the market for petroleum industry in order to avoid
any kind of market manipulation. The government needs to enter into the markets
even when the price of oil becomes highly volatile in the international markets. The
market intervention of the government is a type of institutional orders that is reflected
in the regulation of the gas framework. The administration of the government is
already taking huge measures for setting out various reforms in the petroleum
industry. By entering into the market, the government can combat the inequities of the
market with the help of regulations, subsidies and taxations. Australia’s oil and gas
industry is therefore, is the major contributor to its economy where the coal and gas
sectors in the country plays a very important part. In order to promote economic
fairness, the government can enter in to the market of petroleum in Australia
(Aph.gov.au. 2018). Market interventions are mostly for correcting the market failure,
improving the performance of the economy and achieving equal distribution of both
wealth and income. Based on the various reserves in the shelf of North West, the
industry of Australia extracts crude oil and natural gas. The largest refinery of
petroleum is present at Kwinana and most of the crude oil and petroleum liquids are
exported.
The petrol market of Australia has been subjected to various types of price
controls and monitoring by the Commonwealth and state governments. One way of
government intervention can be the use of taxation policy which states that excise tax
should be imposed on petroleum for generating revenue. This is also term as the fuel
tax. The reason behind the fuel tax is that it will help in reducing the consumption of
fuels along with greenhouse emissions. In addition to the greenhouse emissions there
are also presence of negative externalities which includes air pollution. Also,
sometimes setting a price floor or a price ceiling will make sure that both the
consumers and the producers are earning profits where price floors are usually used
by the governments to prevent prices from becoming too low. Another kind of
intervention is providing subsidies as that would lower the cost of production. Some

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of the possible ways of subsidies includes direect funding and tax giveaways.
However, subsidizing petroleum will add a risk of carbon lock in.
Government intervention is very important in the industry when there is a
presence of market failure. Therefore, the government needs to enter the market for
fair distribution of wealth. When the society is not stable because for the distribution
of wealth it will result in unemployment and even crimes. Market failure also does not
provide good market environment to everyone. Government interventions can have
both good and bad effects in the market. The natural gas industry in the United States
have been the largest source of the production of energy representing about 33% of
the energy produced (Heaney and Treepongkaruna 2017).
The prices of petrol in Australia are on a four-year high where the pinch of
thee inflated prices can be felt as the prices are being driven by the trends in the
international supply of oil. A study carried out by the Australian Competition and
Consumer Commission the petrol prices have seen a dramatic rise after April in the
five largest cities although they were stable for the three months before that
(Aph.gov.au 2018). The current prices are as high as $1.60 per litre. The international
factors are held responsible for inflating the wholesale petrol prices like the tensions
in the Middle East, US sanctions having the potential to be renewed against the Iran
war and the concerns over the Venezuelan supply. This sent the prices of crude oil to
a four year high in May. The fall in the Australian dollar had a compound effect in
raising the oil prices as predicted by Morgan Stanley, who also said that this would
nullify the impact of the proposed income tax cuts. For the petrol prices to fall, there
has to be more definite easing of the production restraint agreement from the side of
Saudi Arabia and Russia (Chua, De Silva and Suardi 2017).
The government has introduced apps which help drivers to locate places that
will supply petroleum at lower prices to aid drivers. This had a downward effect on
the prices and the condition of low competition (Hashimi and Jeffreys 2016).
However, government intervention in this situation of a high price is very crucial to
stop the prices from going higher up and avoiding market failures but this will have
no impact on the demand or supply. Economists have agreed that taxing or removing
subsidies will have negligible impact on the long run demand of petroleum. However,
they would lead to higher innovations in the field of fuel-efficient cars but the

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consumers will continue to be dependent on petroleum (Australian Competition and
Consumer Commission, 2018).
Government intervention has both a positive and negative impact. Subsidies
will lead to a price control even though the emissions from the same are leading to
environmental issues due to the carbon dioxide emissions (Li, Dodson and Sipe
2018). Lowering the prices through providing subsidies will prevent the prices from
rising too high and this will allow for higher consumption. Every year the government
of Australia spends millions of dollars in the oil industry. For supporting fossil fuels
government provides tax based subsidies. The government also imposes taxes on
petroleum which hike the prices.
These price hikes bring higher tax revenues which is beneficial to the
government but has negative welfare effects on the consumers (Competition and
Consumer Commission 2014). In this rising price situation, government will provide
subsidies to let the consumers continue with the international consumption of
petroleum and thus increase the welfare as major part of the population is highly
dependent on the consumption of petroleum.
Intervention from the side of the government in Australia has been beneficial,
as it has led to the reduction in the price cycle volatility (Dodson and Sipe 2016).
Government can intervene both directly and indirectly in the market when there is
price fluctuation. The government intervenes in the market for mitigating high oil
prices. The app introduced by the government, FuelWatch, has played a crucial role
in the monitoring of petrol prices and has led to higher transparency and price
certainty. This app is administered by the Petroleum Products Pricing Act 1983 and
has enabled consumers to have access to information regarding where they would get
petrol at the lowest rate (Competition and Consumer Commission 2018). If left
unregulated, petroleum prices will skyrocket and given the current situation it has
become a necessity. Therefore, soaring petroleum prices will not have any effect on
the consumers demand for it but it will have a negative impact on the overall welfare
of the economy, as it would lead to an increase in the price level or, inflationary
trends (Prsindia.org. 2018). Under the act, all retailers have to provide the details
regarding the price that they would charge for petrol by 2PM every day and by 2:30
PM the app notifies all the citizens through the app notification, hotlines websites and

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similar mediums (Davey 2015). This also helps in the facilitation of competitive
wholesale prices in the market for petroleum. The Petroleum Products Pricing Act
1983 states that when a wholesale price is prescribed the price for petroleum products,
none of the wholesaler shall change the price. This act therefore, prevents excessive
pricing in relation to wholesale trading.
To sum up, petrol price regulation in the Australian market would result in
increased stability and lesser fluctuations in the petrol prices. This addresses
consumer concerns. The intervention would lead to interference with the competition
and reduce competition. With the petrol prices at a four-year high capping the prices
of petrol would result in a point where petrol is not likely to be priced competitively
and the petrol cannot be sold at high prices. However too high price regulations are
not good but some monitoring of prices would benefit the individuals due to
transparency in information and increase welfare.
References
Aph.gov.au. (2018). Chapter 3 - The Petrol Price Rollercoaster – Parliament of
Australia. [online] Available at:
https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/
Completed_inquiries/2004-07/petrol_price/report/c03 [Accessed 29 Sep. 2018].
Australian Competition and Consumer Commission. (2018). Australian Competition
and Consumer Commission. [online] Available at: https://www.accc.gov.au/
[Accessed 29 Sep. 2018].
Chua, C.L., De Silva, C. and Suardi, S., 2017. Do petrol prices increase faster than
they fall in market disequilibria?. Energy Economics, 61, pp.135-146.
Competition, A. and Consumer Commission, 2014. Monitoring of the Australian
petroleum industry, Report of the ACCC into the prices, costs and profits of unleaded
petrol in Australia. ACCC: Canberra.
Competition, A. and Consumer Commission, 2018. Compliance and enforcement
policy. Gas, 2017, p.2020.

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Davey, A., 2015. Refinery Exchange Agreements: Pro‐Competitive, Anti‐
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Dodson, J. and Sipe, N., 2016. Oil and mortage vulnerability in Australian
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Hashimi, H. and Jeffreys, I., 2016. The impact of lengthening petrol price cycles on
consumer purchasing behaviour. Economic Analysis and Policy, 51, pp.130-137.
Heaney, R.A. and Treepongkaruna, S., 2017. The Pricing of ULP and Diesel in the
Western Australian Retail Fuel Market.
Li, T., Dodson, J. and Sipe, N., 2018. Examining household relocation pressures from
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Valadkhani, A. and Smyth, R., 2018. Asymmetric responses in the timing, and
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changes. Energy Economics, 69, pp.89-100.