Fuel Prices
Published Thursday, August 7, 2008
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Stumble It!To the editor:
Could someone, anyone, please explain to me how oil prices have dropped 15-20 percent during the last few weeks, gas prices in the Lower 48 are down and Fairbanks fuel costs haven’t budged?
At $4.45 a gallon, figuring in the drop in oil I estimate we should be paying roughly about $3.75 a gallon. Is it my imagination or are we getting the shaft here?
Someone somewhere is making a lot of money off of us. Is it the retailers or the refiners? I would be willing to bet that if oil jumped back to $145 a barrel then fuel would go even higher than the rip-off prices we’re seeing now!
It also seems that our politicians are more interested in how to waste our money on pork barrel projects than to help us with high fuel. I guess $200 million for a bridge to nowhere is more important than putting that money to the citizens struggling to heat their home and feed their children.
I personally think that come Election Day, we vote all current politicians out.
I don’t care who runs, no one can do a worse job than what we currently have. Heck, I’d run for office but I’m not a crook!
Community Discussion
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Why has neither the DNM nor the Legislature launched any type of investigation?
Shaft! Damn right.
This is serious--I actually agree with gopking on this one.
Thanks for the letter, Mr. Bederka.
I"m voting for myself this year.
You estimated wrong. If oil holds steady at $118 or continues to decline (I've heard estimates of potential $87/bbl) it will until the fall to see that steep decline in gas prices.
There are a litany of reasons, most of which have been posted on this site numerous times. Use your google-fu to do the research.
At work we have a guy that just got back from vacation on 8-6. He spent a month in Long Island and gas was going for $3.85.
Of course Mr. Coghill and Mr. Theriault have the Refineries in North Pole in their District. I'm sure they have been hot on the trail of the Refineries practices for pricing and refusing to produce low sulfer vehicle diesel. Yupper, I can just imagine they rock the Republican boat. Tell us Sirs, just what have the two of you been doing in regards to the Refineries activities??? Will we be reading any Press Releases in the News Miner quoting you two fine Sirs about all of this??? Thank you two fine Sirs for representing us to your fullest capacities!
THUMP THUMP THUMP. Man, this horse must be dead. Let's beat it some more.
Here in the US, our government cannot force a refiner to spend millions on upgrades to produce low sulfur diesel that our same government now requires by law for diesel vehicles. That is why our refineries don't make it, it isn't profitable.
Also, as oil is a global commodity, those same refiners don't set the price of oil.
As for price gouging, if they don't produce much of the product (say gasoline) then they aren't really gouging anyone.
Capitalism, it does work.
I for one will vote aginst any politician who says no to helping the Alaskan people. They do not belong in office, or for that matter even in Alaska.
The problem for many rural Alaskan communities is that the barges are delivering fuel now and will not do it again till next year. Unlike Fairbanks, the price is set for the year. Fairbanks will eventually see a break in prices, many other won't.
I'll vote no for any politician who votes to help the alaskan people in the wrong way, to take Alaskan59's post a step further.
Price controls simply do not work and neither does forcing a company to produce a product.
I hope that our politicians provide the short term help many alaskans need in a way that doesn't screw us all in the long run.
the alaskan independance party has being trying to tell alaskans that they have been getting the shaft for a long time. so far, not many have heard. maybe this issue is the one that wakes people up. alaska is a colony, not a state. the independance party isn't just a party of wackos that wants separation from the united states. it's a party that puts alaska and alaskans first. check out the web site www.akip.org
I was flying last night and had to fuel up, guess what? Av gas is down almost a buck. Yep, I could buy AV gas for almost the same price as Premium Unleaded gas. Ave gas down a almost a dollar and deisel down 9 censts. There is something majorly wrong here
We were just down in the lower 48 and yes gas is cheaper there at $3.51 for unleaded and $4.69 for diesel.
Nobody has explained yet what makes Alaska any different than other states when it comes to dropping fuel prices.
I don't want to hear any more election year crap about Bush or the war because the other 49 states have that too.
No more junk about "maintain your car" I already know that, and it's not the question anyway.
No more "soft" answers like "market forces". That's a null statement, it doesn't explain anything.
What I must know is:
*What exactly is the difference between what prices are here and where prices are going down*?
*Is it taxes on fuel? Federal, state, or local?*
*Is it something about driving here that makes fuel more expensive that doesn't exist in the other 40 states? What is it?
*Are we being gouged by our neighbors? Is it at the store level, or the refinery, or where?
The point was made very well in another thread: It's not the price so much if it's truly market forces. It is about possible collusion by the local industry.
So will anybody investigate this question? No need to reply if you aren't in the industry, or are an alternative energy wonk, a conspiracy nut, or a political PR flack. None of these know any more than I do.
We all need answers
Actually the answer to your questions BobGray1 were already covered in a Newsminer story over a year ago I believe. When asked why they charge what they charge one matter-of-fact gas station manager replied simply, "Because we can." I'll try to find the link to the story.
And I must disagree with Pavel in his second reply from the beginning of this thread -- capitalism does *not* work! That should be evident to all the so-called business majors who actually believe companies can continue to make increasing profits year after year selling widget A, service B, or whatever. The system, is simply doomed to failure.
I received a nice letter from Scott Kawasaki (who is not even my rep by the way) explaining that we are in fact getting screwed!
He read my letter to the editor and sent me out a note! I was shocked!
Fuel costs should have dropped here - a long while back. Sorry, but if the prices in the states have dropped .50, then our prices should have dropped by that much too.
Bob Bederka and the rest, Don't you believe in free markets? What commie thoughts are cruising thru your minds?
Questioning profits is just un-American. Next thing is you would want Wall Street, the banks and mortgage companies to suffer for losing money. Don’t you know they are more important than you?
The triumphs of capitalism have given us a wonderful transportation system: transcontinental rails, interstate highways, airports and airlines. Wait those were federally subsidized programs. Free markets gave us the dismantling of commuter light rail and city bus service. Sometimes allowing them to be set up to fail so the private sector could come in and save it. The profit was mostly in existing infrastructure, like the Fairbanks City utilities that were sold cheap.
By the way there is already talk about a government bailout of both Ford and General Motors, and that would only be for your own good.
Fire 'em up.
Mostly all of our politicians are crook (just look at the news) who are interested in only helping themselves. Come election day lets remove these parasites
Alaska only has three electoral votes and not even a million people in population. Who out there really thinks any politician really cares about helping Alaska and Alaskans?
I heard by the time the Alaskan votes are counted we already have a winner. We must not make too much difference.
I wouldn't say we're completely discounted. In 2000 had our 3 votes gone the other way, the vote would have been Bush 268 - Gore 269, giving Gore the presidency. Sometimes even the small have a big voice, and Alaska most certainly had the opportunity to determine the election that year.
If you consider 620,000 people receiving a PFD, that is probably close to $100 million returned to the federal government April 15.
(Above the wage and investment icomes and other taxes all states incur)
So Alaskans are partially funding what federal spending we receive.
Had that happened, the House would have chosen our fearless (fearful?) leader for us. (12th Amendment) Gore would not necessarily have won in a Republican majority House of Representatives.
As has happened several times in our history, the winner of the popular vote majority may not win the election. A candidate needs only to win 13 key states plus any one other in order to win the election. Even winning the popular vote in the state doesn't guarantee the candidate will win the electoral college votes. States have laws to pledge the EC votes as a single bloc, but the EC members can vote any way they please. There are laws in some states punishing faithless electors and only one has a law that may cast out the electors ballot. Hasn't happend yet, but faithless electors are theoretically able to change a presidential election.
Read your history.......
I'm not insinuating the vote was robbed. The rules are the rules. All I was saying is that just because we have a small number of votes, it does not make them worthless.
I have a good friend that owns a gas station and heres the deal. Fuel prices only drop if the local retailers wish to do so. Prices rise at the pump because they have to, the price of oil will dictate it. Prices dont drop because they dont have to. There is nothing in place to regulate the price or amount of profit that a local retailer can make. If oil drops back down under a $100. a barrel it doesnt mean the price at the pump will change, they can charge what ever they want. My friend drops the price at his pumps only after others do, so if no one drops their price neither will he.
More shaft, California is paying less than we are and 2 years ago we were paying about 30 cents less than my family did in LA.
There are answers to many of these questions at www.fairbanksgas.com
Soooo, lemmie get this straight...
According to DOE statistics, the North Slope is responsible for about 14% of domestic oil production. Most of this oil is destinded for refineries in Washington and southern California. Unleaded regular is selling for $3.89 and $3.96 in Seattle and Long Beach, respectively. The pipeline that helps transport this oil to its destination is less than 5 miles from my house; the refinery where this oil is refined into gasoline and heating oil for local consumption is less than 2 miles from my house. The price for unleaded regular in Fairbanks is $4.42. Why?
C'mon Tesoro, don't be afraid to chime in here. How about it Petrostar, cat got your tongue? While you're at it, care to explain to me why diesel is cheaper in Delta Junction than it is here? $4.89 on Sunday in Delta vs. $5.24 in North Pole.
"When asked why they charge what they charge one matter-of-fact gas station manager replied simply, "Because we can.""
I say its time we pool our efforts and pick one brand and don't buy any fuel from them for a week at a time. Once their sales flatten out and they start losing money, maybe they'll get the message. I'm not talking about just one station, I mean the brand, as in this week we don't buy ANY fuel from Tesoro, next week it will be Sourdough who, by the way, is owned by the same company that owns Petrostar and they also own the area Texaco franchise. Talk about a monopoly.
I'm amazed how quickly the price of gas goes up when the price of a barrel of oil goes up. I'm talking about a product that's been refined and is sitting in the ground in the tanks at the gas station. But ever notice how long it takes for that same gas to decrease in price when the price of oil falls?
We are being ripped off big time.
The FNSB Economic Development study in 2005 offered no answers for our prices either, we're a small market. It looked at Fairbanks and Anchorage rack prices.
http://www.co.fairbanks.ak.us/MayorsOffi...
The FNSB Economic Development Fuel Survey Report 2007 covers gasoline and heating oil prices statewide.
http://commerce.state.ak.us/dca/pub/Fuel...
Alaska's refining industry is a bilateral oligopoly, a market with few sellers (oligopoly) and few buyers (oligopsony). Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may collude to raise prices and restrict production in the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a cartel. Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.
I got an A+ in ECON 101. Free market capitalism can not effectively deal with monopolies. If the only coffee shop in town was charging $20 for a latte and people were buying them we would see 20 more coffee shops charging $4 within a few weeks. It is not that difficult to make the investment to start a coffee shop, but it is beyond the means of all but the largest corporations to build a refinery. We have regulated electricity and telephone utilities because the free market can not deal with monopolies.
We are now seeing the results of national chains replacing local retailers. The price we pay at the pump is not what our neighbor thinks is fair. It is the price that a fuel broker in Kansas thinks will make the most profit for the company. Flint Hills has publicly stated that they are loosing money on long term jet fuel contracts. To make up the difference they are increasing the margins on everything else. What would your reaction be if GVEA was private and had a fixed contract to sell Ft. Knox electricity for 8 cents and had to raise the residential rate to 30 cents to maintain their profit margin? This is exactly what is happening to fuel prices in Fairbanks.
I can show you a graph going back 10 years that shows that jet fuel prices in Alaska and Seattle are nearly identical, while gasoline and diesel prices are 25-50 cents higher. The only thing different now is that 25-50 cent difference is now $1 a gallon or more. For a real shocker click on www.oklahomacitygasprices.com and check out the $3.34 a gallon prices. (By the way the gas tax in Oklahoma is double that of Alaska.)
Justin Powell
www.fairbanksgas.com
powell@fairbanksgas.com
Alaska doesn't have a refinery that produces low sulfur diesel or much in the way of gasoline.
For ease of math and so some of you can follow along, here is pretty much how it works.
Oil Company X pumps a barrel of oil out of the ground and it sells for $1.00. It then costs $.25 to ship it down the pipeline to Valdez. It costs $.75 to ship it to a refinery in WA or CA. It costs .$25 to refine it into all those fun things like gas and diesel. Then it costs another $.75 to ship it back to Alaska. Then it costs $.25 to put it on a train or truck and bring it Fairbanks. Then the fuel sellers tack on their profit margin, say $.02.
Now with rising oil prices, it costs more money to ship it, to truck it, to refine it. The price of everything along the way went up.
I made up the numbers and they don't mean squat but to illustrate why, when we are so close to oil but so far from everything else in the process, our gas prices are stupidly high.
As for as monopolies, oligopolies, collusion, price fixing and the like, there are federal and state laws to deal with it. The reason you are seeing any sort of investigation is because none of it is going on.
I don't doubt for a minute that we are subject to economies of scale here, more money has to be made back on less volume. If you need $1 million to turn a profit, it easier to get it back on a million gallons then 250,000.
Quite the mis information to be spreading, I prefer to listn to information from Fairbanksgas and select others.
Call me crazy but I still say gas prices won't drop until tourist season is over. The tourists are paying the ridiculous prices so we are stuck until they go home. All prices in Alaska go up in May and down in September. It doesn't take a rocket scientist to figure that out.
sarcasm
I know I prefer to believe anecdotal evidence on the internet then established economic princibles.
/sarcasm
Flint Hills and Tesoro refineries have an agreement when it comes to lowering our fuel prices. Neither of them wants to lower the prices because they are raking in millions every day, but they jump at the opportunity to raise the price. Mr. Koch is a thief and could care less about anyone but himself...ask anyone who has had the misfortune of working for Flint Hills. By the way, gasoline is cheaper in Hawaii right now than in Alaska...and it costs a hell of a lot more to ship fuel there by barge.
I can totally see it. The two refiners have entered into an illegal agreement, violating a number of federal and state laws that carry prison time and some massive fines so they can bilk a few million from a few people. And they agreed to do it when Congress has been calling oil company CEO's to Capitol Hill and watchdog groups are scouring their SEC filings for any hint of price fixing. Multi-billion dollar companies are risking it all to screw Fairbanks. I can totally see it.
Did you know that Hawaii has a refinery that handles more crude oil then the one in Kenai? They also have double the population of Alaska. So the 45k people in Fairbanks don't offset cost increases nearly as well as 1.3 million people. It is cheaper to ship straight crude to a refinery in Hawaii then it is to ship it to the refinery, ship it back to Alaska and then ship it to Fairbanks.
Why is this so hard to understand? We don't have a refinery, we have a small population and a large mark up to get the oil out and back again as gas and we get screwed on the economy of scale.
I just don't understand all the conspiracy theories. This level of economics isn't that hard to understand.
Supply and demand they have the supply we have the demand.
Actually the population of the Greater Fairbanks Vicinity is closer to 85,000. I can imagine all the other information is just as accurate.
Pavel & Fairbanksgas - I understand now, thanks for your time and the education.
Pavel, 100% of the heating oil for Fairbanks comes from North Pole. The marine transportation tariff is $1.50 per BARREL, or 3.5 CENTS per gallon so that does not explain anything. In the history of Fairbanks we have never been paying this much more than the rest of the US. You don't have to have a formal agreement for price fixing to occur and the Kenai refinery does refine low-sulfur fuels.
Please tell my how it is easier to load crude onto a tanker, ship it across the Pacific, and then unload it compared to having a dedicated pipeline connected to TAPS and then be able to return all byproducts back into the same pipeline? Oh, by the way, the local refinery is paying $10,000,000 a month less than West Coast spot price because they get a discount off the marine transportation and the downstream pipeline tariff. Here is a link to an actual invoice from last year for the crude oil purchase from the State of Alaska if you do not believe me www.fairbanksgas.com/INV_FHR102007final....
My wife and I will be moving there in September and I don't like the gas prices I'm seeing either. In Texas, I've been finding it for $3.51. I use my own truck for work now and with my new job I will be given a company truck. So, instead of two cars we will now just have one. I expect to be paying less over all, but it really does not make sense that the prices go down in the lower 48, but not Alaska.
As of 2000, the population of Fairbanks was 30,224. If anything I over estimated the population growth. The FNSB was around 82,840. Pretty sure I said Fairbanks in my post, lemme scroll up and check.
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Yep, I said Fairbanks.
Even giving the 80k+ FNSB population it is still dwarfed by the 1.3 million people in Hawaii, my assertion still stands.
I didn't say it was easier, I said it was cheaper. I would guess it is easier to hook up an oil tanker at port, fill it with crude and sail it to Hawaii where it is offloaded directly into the refinery, processed and then shipped via pipelines (yes, hawaii has them, info availible on the Tesoro Hawaii refinery site) around the islands.
One boat, one way trip to Hawaii vs 2 boats, round trip, plus a train or truck. It isn't rocket science.
As for what Kenai makes, I found they happen to make the same assortment as Flint Hills, though in different quantities but also make the low sulfur diesel. And guess what? They supply Anchorage and the surrounding area but even they don't meet the entire demand of the area.
The marine tariff is minuscule when compared the simple act of moving the oil. Those tankers are burning expensive fuel to move that crude.
As for where our heating oil comes from, I can find nothing one way or the other. Given refining rates, what Flint Hills refines, I don't believe they can supply 100% of the heating oil needs in the Fairbanks area (larger, if you include Delta, Healy and all those outliers).
Yes, you do need an agreement (formal or not) for everyone to hold the price artificially high. There is too much competition for customers for the price to stand on its own without one. Freddies lowers their price by 2 cents, more people go there for gas and a few of them go in to shop. So Safeway follows suit, and on and on. Eventually you hit the price floor and it holds steady. It is how the free market works.
I am glad that people are questioning the economics of the situation, but using a conspiracy theory shouldn't be part of the equation. There are WAY to many people eyeballing the situation with oil and gas prices for any kind of price fixing to occur.
Pavel your choice of tems are misleading. Why?
Anyway you do not need a conspiracy or illegal activity to effective collude for higher prices when the number of suppliers is small. If one can get away with keeping the price high the other will comply. Oh right, that's just the frre markets doing their magic. We should be thankful they allow us to buy back our own oil. Now I understand. I'm sure glad the State didn't buy the Koch refinery and disrupt this wonderful free market.
To effectively collude to keep price is, by definition, illegal.
It is my understanding that the fuel produced in the borough is diesel and jet fuel. If the unleaded is not produced here, and it is shipped to the interior is there not a shipping charge that is passed on to us? If so, it would be understandable as to how the prices have not matched the states. Perhaps if all retailers knocked off the shipping price, everything we buy in the interior would be the same cost as in the lower 48.
Let's try to be realistic here. If you expect to pay what is payed in the states, move there. We also have a higher paywage here. Granted, these are hard times but if I had to live in the states making $7.15 an hourer, it would be harder.
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