Gas prices slow to change

Posted: Tuesday, November 13, 2001

Gasoline prices that had been steadily climbing nationwide since the spring of 2000 recently took an abrupt U-turn. Although prices in the Lower 48 reportedly have plummeted to sub-dollar marks, Alaska prices -- including those on the Kenai Peninsula -- have been slow to change -- if at all.

Alaska oil and gas officials say, in spite of lowering crude oil prices, following national trends won't be as simple for the state. However, some say there is hope.

Jack Griffin, of the Alaska Attorney General's office, said his office has been investigating gasoline prices since June 1999, looking for inappropriate pricing practices.

"People look out and see that we produce oil here, and we have two refineries here," Griffin said. "And they ask, 'Why can't we get gas really cheap?'"

Griffin said Tesoro and Chevron were among the companies the Attorney General's office was looking at.

"One of the things that the Department of Law was looking at was if there was something else going on that rational business can't explain," he said. "Are there agreements affecting prices? At this point, this office is not in a position to say that there are agreements. There's nothing unlawful."

He said that although oil prices have come down, there often is not a direct response in retail.

"The retailers aren't the ones that experience the benefit of lower prices," Griffin said. "It's the refiners and wholesalers that do.

"Even if wholesalers lowered wholesale prices to retailers, retailers are under no legal obligation to lower prices. Retailers can charge what the market will bear as as long as they don't enter an agreement (with one or more competitors) that sets prices that keep competitors out of the market."

Jeff Cook of Williams Alaska Inc. said Alaska's population contributes to the slow decrease in gasoline prices.

"It makes a bit of sense," Cook said. "We don't have people, and we don't have a lot of road. Obviously, you get into smaller areas like Kenai or Homer and you have a lot less volume. We've got stores in the Lower 48 that do five times more business than Alaska."

He said refined oil does, however, make its way throughout the state for a use more common to Alaskans.

"A lot of Alaska depends on air transportation," Cook said. "We are the only state that sells more jet fuel than gasoline. For our particular refinery, the gasoline portion of everything we refine is less than 10 percent."

Tesoro owns 29 company-operated stores across the state. Another 120 stores belong to dealers, independently owned stores that pay to use Tesoro's name and products. Rik Bucy, North Slope general manager, said Tesoro has no way of telling how dealers charge for their gas.

"All we control is the price at which we sell it," Bucy said. "We sell it to the stores, and they put their own price on it."

Ron Noel, a vice president of Tesoro Alaska, said the ratio of gas stations to driving customers does not add up on the peninsula. And retailers still have to pay their bills when business is slow.

"On the peninsula, you have extreme seasonality," Noel said. "Whether you're selling a lot of gasoline or a little, it still costs the same to operate store.

"If you have a small town that really needs two barbershops and they have 10, it means there are a lot of barbers who aren't making money," he said.

Cook said environmental considerations also play into the price of gas.

"Part of the things about retailing that people don't realize is that Alaska has strenuous environmental regulations," Cook said. "I think we should have strict guidelines, but that also costs money."

Noel said he noticed prices beginning to drop in Anchorage in the past week, noting some prices below $1.50 per gallon for regular gas.

"The Tesoro over on Tudor was at $1.49," he said. "I think it went down either Friday night or Saturday. There's an independent company called Courtney's that was at $1.49 several days before Tesoro and Williams."

Cook said prices could still see a decrease in the state, in spite of low consumption.

"Right now, prices are starting to move at the wholesale market," he said. "We are starting to see some movement in gas prices."

Noel said he was also anticipating price drops, but he cannot be certain.

"It looks like there's some decreases working their way through the market," he said. "I think they've been averaging about $1.55 to $1.56. If crude oil prices continue to stay down, I would suspect there would be some slackening of prices."

However, he reemphasized that in an ever-changing market, nothing is certain.

"If I were smart enough to predict crude oil prices, I wouldn't be here in Anchorage."



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