Legislature launches investigation into Alaska’s high gas prices
Published Thursday, September 11, 2008
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FAIRBANKS — The first day of a legislative inquiry into high retail gas prices netted few answers, but opened more questions.
Much of what legislators wanted to know from the state’s three refiners — Flint Hills Resources, Petro Star and Tesoro Alaska — is considered confidential, proprietary business information that refinery representatives said they couldn’t discuss publicly.
All three did say they would, under confidentiality agreements, provide much of that information to Ed Sniffen, a lawyer with the state attorney general’s office who is investigating high gas prices. Gov. Sarah Palin ordered that inquiry in August.
Rep. Jay Ramras, a Fairbanks Republican, chairs the house judiciary committee, which held the hearing in Fairbanks.
Sniffen said part of the problem may be a lag in price adjustment typical in Alaska, and that pump prices could go down more in the coming weeks.
“This lag is particularly long,” he said. “It seems like the run-up was so dramatic and so fast, it did just catch everybody off guard to a proportion we just haven’t seen before.”
Sniffen updated the committee on his investigation. Retailers don’t seem to be making much profit on gasoline, he said. The high prices are coming from refineries.
However, as the three refinery representatives testified, the refineries aren’t making much money either. Their costs are higher than ever due to numerous factors that fluctuate in their direct influence on retail prices.
Among the production challenges are access to crude oil and federal environmental quality rules, such as a mandate that took effect in 2007 decreasing the amount of sulfur in gas and diesel. Some refineries, including Flint Hills’ North Pole facility, would require extensive upgrades in order to meet those standards.
“We now buy gasoline and diesel fuel from other sources in order to meet the full needs of our customers,” Jeff Cook of Flint Hills Resources said.
Flint Hills takes 180,000 to 220,000 barrels of North Slope crude oil off the Trans-Alaska Pipeline System each day. The crude oil is heated and distilled into a few products for sale — mostly, into jet fuel. Flint Hills provides less than a fifth of the state’s gasoline and about a third of the heating fuel used in Fairbanks, Cook said.
Flint Hills also is suffering through its crude oil supply contract. The refinery gets oil off the pipeline as state in-kind royalty oil, which means the refinery pays a premium. The state is obligated to sell its in-kind royalty oil to generate the maximum return for Alaska.
“For the majority of the last 12 months, we have lost money,” Cook said.
Petro Star president Doug Chapados said his company is the smallest in-state refiner and gets its crude oil from a major producer. Petro Star’s North Pole refinery can manage 20,000 barrels of crude per day, and a Valdez facility can process 48,000 barrels per day. Primarily, Petro Star makes jet fuel to meet contracts with the military and commercial use. The refinery does not make gasoline, but does produce a limited amount of heating oil. That is being limited somewhat by federal clean fuel mandates, he said.
Because of those restrictions, Petro Star actually ships jet fuel refined at North Pole to Southcentral Alaska, and trucks other products made in Southcentral back to the Interior, he said.
Tesoro Alaska is now the only Alaska refiner able to produce highway diesel fuel — yet the company imports about 25 percent of its crude oil from foreign countries in order to maintain production levels demanded by Alaska markets, said Kip Knudson, the company’s director of external affairs.
That is largely due to serious decline in oil produced from the Cook Inlet, he said.
“It’s going to continue to be a larger number as Cook Inlet production declines,” Knudson said.
No one knew how much refined gasoline might be imported into the state.
Rep. Lindsey Holmes, a Democrat from Anchorage, said refineries across the country must face similar issues and questioned again why prices have not dropped in Alaska as they have Outside.
“Everywhere else, they seem to be coming back down,” she pointed out. “Why are things so different here?”
The house committee is looking into retail gasoline prices and an explanation for why those prices haven’t dropped in Alaska as quickly as they have Outside. In particular, the committee wants to figure out if refiners, retailers and distributors are exerting power over pump prices or if the problem is actually a production issue, Ramras said.
A report will be produced after follow-up meetings later this fall, he added.
Community Discussion
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Like we need an investigation to figure out there is a lag in price adjustments when the price of oil drops but not when it increases. Oh, it will come down in a few weeks but go right back up when the investigation is over.
The Hole in the Wall Gang is investigating the Den of Thieves.
Flint Hills says it must pay a "Premium" for oil and low sulfur upgrades are costly. Tesoro says it must import 25% of it's crude. So why is gas sold at the Tesoro Gas station on College road consistantly 16 cents higher than the Tesoro station on Farrington Hwy (in Honolulu, HI) - according to gasbuddy.com? In Hawaii they have a simular high operating cost and they too have to make the required upgrades. The last time I looked, they had to import 100% of their oil!
With this issue we have of keeping our energy costs the highest in the nation, the Interior is a place not to live for retieries now. If you want to stay in Alaska in your Golden Years, South Central is getting to be the more likely local.
i agree with a poster above. the legislature is going to white wash the oil companys price gouging of alaskan consumers. what do you expect of a legislature who is in juneau instead of reachable by road. how many lobbiests does the oil companys have in juneau full time. we have the best legislature that money can buy. watch the report and see if it is not true.
This investigation will find that there is nothing wrong going on. The industry will continue to lie and deceive and make huge profits, and the politicians who need the campaign contributions from the oil industry won't bite the hand that feeds them. This is all political grandstanding. How many of these oil pricing investigations have we had over the years? None of them have ever concluded that the industry was doing anything wrong. Every time we read anything about high prices, the story from the refineries is different. The argument that the price of gas remains high because they purchase oil on the world market falls flat on its face when one realizes that if that is the case, the price of their fuel should have fallen at the same rate as the rest of the country, since they also have to purchase crude oil from the same world market at the same price.
"Sniffen said part of the problem may be a lag in price adjustment typical in Alaska." Right, prices lag going down but they go up seemingly within minutes of the price per barrel going up. If I told my employer "I want more money, my production is down today." I would be fired. Seriously, what would happen if the Alaska Legislature decided to regulate crude oil refining (or some other stage in the process) as a utility, the way the Public Utilities Board regulates electric rates? The refiners already have facilities in Alaska, it is not like they will shut down and leave. I am not sure how this kind of regulation works, so I am not trying to be sarcastic or mean-spirited, but oil has become a necessity, not a convenience, so maybe regulation would help. I am concerned that our free-enterprise system is being used/abused. Price gouging is not illegal in Alaska but people are being abused at a time when there is little room for choice by the consumer. Meanwhile, Natural Gas is likely the answer and we need a gas line to Fairbanks ASAP -- and more NG powered vehicles when that time comes.
All this information has been on my website for two years now, www.fairbanksgas.com. Not one reason offered up by the refineries is a factor that is unique to Alaska. All refineries have to meet federal standards and can do so at $1 less per gallon. Today's low price in the US is Oklahoma at $3.21 per gallon with .16 cents more State tax per gallon, www.oklahomacitygasprices.com. That factors out to $3.05 compared to the Alaska low price of $4.14 in Anchorage!
I would like Flint Hills to further explain the "premium" that they are paying for their crude. The invoice from the State shows that this "premium" is $10 million dollars less than the market price per month. See for yourself http://fairbanksgas.com/INV_FHR102007fin...
Williams sold their North Pole refinery because it was one of the few moneymaking operations they had. Now Flint Hills can't seem to make it? Maybe if they invested some of the Koch brothers billions in the place and added a cracking plant and a low sulfur train they might be able to turn it around. Of course they would need gas to heat the plant. They have to burn oil to make oil now.
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It's simple,
oil prices have dropped almost 1/3 ($150 to $100 a barrel)
fuel prices ahve droped 1/15 ($4.50 to 4.20 a gal)
the rest is smoke being blown up our a.. and BS
We are paying for their losses in making jet fuel under contracts where they lost their a..
When I saw the DNM picture ref the gas price investigation in today's issue, I was going to comment on Pinochio's(?) nose and the similarity of the participants, but decided the picture just speaks for its self.
We are required to meet fed mandates on low sulfur gas and oil. Our population is around 600,000 our state the largest state in the union. Density of population / land area percentage is so small, people / square miles. Why are we held to the same standards as the lower 48 big cities, which have as many as 4 and 5 times the population of our state in a city the size of Anchorage? The answer to reduce high prices for Alaskans is as simple as stop fed mandates on production of petroleum products produced for and used in Alaska. No more high prices, no more imports. The quality of air was maintained before the sulfur mandate it can still meet the previous standard. Put a little more money and effort into the gas pipeline to reduce our crude dependency in the future and our air quality should improve. Possibly a win/win situation.
If you don't ask the correct question, you will NOT get the correct answer.
What cause and effect does the sale price of State of Alaska owned royalty crude have on the pump price?
Example: if royalty crude (your property) is sold at a price of $140 p/b would the retail price be more or less than if the royalty crude was $33 dollars per barrel?
NOTICE THE WORDS: the sale of.."royalty oil to generate the maximum return for Alaska"
The the sale price of royalty oil is set, determined, fixed by this statue.
ASS Sec. 38.
[ .... sniped ...]
AS 38.05.183. Sale of Royalty.
(a) The sale, exchange, or other disposal of a mineral obtained by the state as a royalty under AS 38.05.182 , [.... sniped meet the posting requirement... ]
(d) Oil or gas taken in kind by the state as its royalty share may not be sold or otherwise disposed of for export from the state until the commissioner determines that the royalty-in-kind oil or gas is surplus to the present and projected intrastate domestic and industrial needs. The commissioner shall make public, in writing, the specific findings and reasons on which the determination is based.
(e) When a sale, exchange, or other disposal of oil [.... snipped ...] buyer whose proposal offers the maximum benefits to citizens of the state. The commissioner shall consider
(1) the cash value offered;
(2) the projected effects of the sale, exchange, or other disposal on the economy of the state;
(3) the projected benefits of refining or processing the oil or gas in the state;
(4) the ability of the prospective buyer to provide refined products or by-products for distribution and sale in the state with price or supply benefits to the citizens of the state; and
(5) the criteria listed in AS 38.06.070 (a).
(f) The commissioner may not enter into a contract for the sale of royalty oil unless the contract provides that any material amendment to the contract that appreciably reduces the consideration received by the state requires prior approval of the legislature.
(g) AS 38.05.035 (e) does not apply to a sale, exchange, or other disposal of oil or gas under this section.
(h) Upon legislative approval, the commissioner may enter into a contract to sell royalty gas taken in kind by the state to a gas or electric utility at a negotiated price for the gas if the commissioner, after considering the consumer benefits, other benefits, and detriments of the sale, makes a written finding that the sale is in the best interest of the state. In this subsection,
[ snipped to meet the posting requirements ... the full text is on the net]
Notice section (e) parts 1-4 and phrase relating to export of royalty oil.
Looks to me it is being exported when loaded on to international traveling air craft.
Thought that might happen with the new managing editor in place.
Was told by someone near and dear to him some months back that he is a bit overboard on the delete button.
Funny, on some of the threads about race issues, threats have been made, but those are allowed to remain because, I guess, they come from the PC side.
I have never once requested removal for any post on anything.
Anyway, Jeff Cook makes me sick. When I see him anywhere, as I did last night,
in my eyes he always wears a scarlet letter.
From the Fuel Refinery to the Fuel Truck Driver to the the Air fuel transporter and to the Village Fuel Entity and on to the Alaska Resident, it gets pretty expensive just to heat and put food on the table.
and it all depends on the weather.
Where is the Tax Breaks? cause it will be a cold winter ahead.
Hairbrain,your right on the money with your analogy. The investigation will produce nothing in the long run. When you publicly announce an investigation before the investigation what do you expect to find at the crime scene exactly. A couple local politicians aren't going to crack this caper anytime soon. The stakes are too high and the profits are too good to ever leave a clue behind. The crooks and thieves that operate in this industry have a room full educated thieves that make their living defending their boss.
Using another analogy finding the source of the price gouging is like looking for the "Kingpin" for all the cocain coming into Alaska. You might find a stooge or two to point a finger at but you will never be able to find the ghost with the fat wallet.
Just a suggestion to the
Alasa Legislature,
Can You Say Supprize IRS Audit (it usually ony takes one anonymous phone call for them to take action). Bet you find out the why of this issue quicker than if you wait on The Courts in Alaska.... (Check out your Judges Financial Statements...
Seems they as a Whole hold major stocks in the Petrolium industries!!!)
This may perhaps potentially be why the Republican presidential candidates are contemplating replacing most (if not all) of the SUPREME COURT JUSTICES.
Think about the Exxon Vadez ruling...
The total award is less than the
[R]eported monthly earnings posted by Exxon/Mobil Corporation, a mere fraction of the Damages incurered and much less compensation than is acceptable for the lost earnings of the Fisheries(Check out the Estuaries in that area for literally tons of dead Oil Poisened shrimp)
It also appears to looks like The U.S.
SUPREME COURT JUSTICES were covering for thier "BUDDY" whome due to the Rules of Court State and [F]ederal:A Judge shall avoid improprieties and the Apperance of inproprieties(legally
[H]ad to sit out because he holds Major Stock in Exxon and stood to lose Millions of Dollars).
meanwhile peoples lives have been virtually destroyed, people have died waiting to be compensated , and the Fisheries in
Prince William sound have not recovered.
To top this all off The studies of the conditions of the fisheries and Coastal water recovery that The Court relied upon were bought payed for and provided by The Exxon/Mobil corporation... Talk about conflict of interest.
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A list.
How do you spell "hari-kari?"
On second thought, it's my understanding that it's done out of a sense of loss of honor.
Fat chance, huh?
No way in hell is Flint Hills losing money for the last 12 months. They may be able to show a loss on paper, but no way are they truly losing money out there.
Dondi---What?? To start off a Supreme Court justice is appointed for life. That is until he dies or retires. I guess they could be impeached but I'm pretty sure the president can not simply replace them.
at least they are looking into it now we need to get the prices dropped down and the freeze them in place.
You cannot impeach a member of SCOTUS. They have to die or retire, there is no other way to remove them from the bench. It was done specifically to prevent any sort of influence on them.
I'd go over all the reasons (again) about economics, supply and demand, economies of scale, costs of transportation but it won't do any good. People who post here believe they are being screwed at the pump and that it is a giant conspiracy but they see the truth because their tinfoil hats are shaped just right.
Scrap the investigation! Another hurricane is coming. Now they have a reason to jack the prices back up again. People should shut up for a while, now that they have dividend money in their pockets.
Ask flint hills what the difference is between their jet-a and diesel #1 - fuel oil.
The answer: Nothing other than marketing. Same product, different prices.
Pavel:I have logged aprox.20440 HRS. of time logged into the law library studying both State and Federal Statutory and Constitutional Law, and like Majistrate Spaulding once stated in open court(when she worked for the Alaska Public
Defenders Office).."although Mr.Cook appears to be arogant at times, He is almost always right!"
Now back to removal of Supreme Court Justices!
http://en.wikipedia.org/wiki/Supreme_Cou...
Once appointed, Justices effectively have life tenure, serving "during good Behaviour,"[1] which terminates only upon death, resignation, retirement, or conviction on impeachment.[2]
Oh, and by the way, I don't have much use for the tinfoil hats anymore....
Not since I obtained this Titanium plate anway!
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