Gasoline prices have fallen under $3 in Juneau. The automatic pump at Fishermen's Bend in Auke Bay, pictured here Friday, have the lowest prices in town.

Gasoline prices have fallen under $3 in Juneau. The automatic pump at Fishermen's Bend in Auke Bay, pictured here Friday, have the lowest prices in town.

Pumped up: The concealed truth behind gas prices

At 11 a.m. every weekday, Wade Bryson sits in a small swivel chair, leans close to a microphone, and listens to problems.

For the past eight years, Bryson has been the host of KINY-AM’s “Problem Corner,” an on-air venue that’s part garage sale, part public forum. For more than a quarter-century, Juneau residents have turned to Problem Corner to sell their old cars, spread local news and talk about the issues troubling them.

Lately, that talk has focused on one topic in particular: the price of gasoline.

“Most people felt like they were getting gouged,” Bryson said, “because we heard stories all over the news about gas prices dropping, and Juneau’s just weren’t coming down. … That just exacerbated everyone’s frustration with the high cost of living here.”

In quiet moments on the show, Bryson only had to mention the topic and the phones would light up, setting off a strobe light on a studio wall to indicate an incoming call.

It wasn’t just “Problem Corner.” Across social media and in emails to the Empire, Juneauites demanded answers: Why weren’t Juneau’s gasoline prices dropping along with crude oil and those in the rest of the country?

The data back up the complaints: According to figures compiled by the American Automobile Association’s daily fuel price report, American drivers are paying the lowest February gasoline prices since 2004. Friday’s national average was $1.70 per gallon for regular unleaded.

In Anchorage, the average was $2.16 per gallon. In Fairbanks, it was $2.46. Seattle’s average was $2.18. In Juneau, it was $2.88.

Since summer 2014, the price of North Slope crude oil has fallen by two-thirds. Juneau gasoline prices have fallen by one-quarter in the same period.

Figures compiled by the Empire, using real-world receipts saved by Juneau drivers, show the difference between national and Juneau prices has swelled.

In February 2014, the gap between Juneau’s most popular gasoline retailer — Fred Meyer — and the national average was 47.6 cents per gallon. As of Friday, it was $1.20.

While there are signs that gap is narrowing again, economists, gasoline distributors, retailers and others interviewed by the Empire said that gap exists for a variety of reasons, including Juneau’s isolation, a lack of competition, refinery trouble, and the mechanics of the fuel market in Alaska.

 

Closer to Seattle than Anchorage

Forget what your uncle told you about prices in Texas and what your aunt shared on Facebook about the cost of gasoline in Michigan. Toss out Anchorage and Fairbanks, too. Understanding Juneau’s gasoline prices means looking at Washington state and British Columbia.

“The fuel that we bring into Southeast Alaska is sourced from refineries in the Pacific Northwest,” explained Mark Miller, a national spokesman for Crowley, one of three gasoline distributors in Juneau. “It could be Tacoma, it could be Anacortes, it could be Vancouver, B.C.”

Although Juneau has 10 gas stations, each of those gets its gasoline from a distributor, of which Juneau has three: Delta Western, Crowley (operating under the name Taku Fuel) and Petro Marine. All are fed by refineries to the south. Only rarely does fuel come to Juneau from in-state.

In 2013, according to statistics kept by the U.S. Army Corps of Engineers, Juneau imported 20,242,860 gallons of gasoline. Nearly 10 times as much gasoline passed through the Port of Anchorage in the same year. About 100 times as much passed through Puget Sound.

That 20 million gallons represents about half of Juneau’s petroleum consumption in a given year. The other half includes diesel for generators and trucks, lubricants, and heating oil for homes and businesses.

From the time it leaves the ground via an oil well, crude oil typically passes through a series of pipelines before it gets to a refinery. At the refinery, it’s turned into gasoline and any number of other products. If it’s headed to Alaska, it’s transferred to a barge and pushed by a tug to a fuel depot in Southeast Alaska. At least one distributor uses a main depot in Ketchikan, then transfers gasoline to a smaller barge for shipment to Juneau. The other distributors ship direct.

From the Juneau depots, the gasoline is loaded into tanker trucks, which haul it to the city’s gas stations. It’s pumped into underground tanks, which supply the pumps that deliver gasoline to your car.

 

An island within an island

Most Alaskans keep an eye on the price of crude oil — it’s what supports the majority of the state’s budget, after all — but they’re not familiar with the costs of the steps between the oil well and the gasoline pump.

That’s understandable, said Denton Cinquegrana, a chief oil analyst for the Oil Price Information Service (OPIS), which specializes in that information. “It’s hard for even us to come by,” he said by phone.

“It’s really not transparent at all,” said Nick Szymoniak, who in 2010 was the lead author of a report breaking down the components of Alaska fuel costs. That report, produced by the University of Alaska Anchorage’s Institute of Social and Economic Research for the Alaska Senate, is six years old, but multiple people familiar with Alaska’s retail gasoline market said it remains the best source for information.

“That tells a pretty good scope of information,” said Delta Western president Kirk Payne.

Payne declined to reveal cost information, as did representatives of the other Juneau gasoline distributors. “No, I’m not going to talk about that,” he said.

For the outside observer interested in finding out why a gallon of gasoline costs what it does, there are only four reliable “windows” into the process: At the wellhead, at the refinery, at the wholesale level, and at the pump.

On Feb. 9, a gallon of Alaska North Slope crude oil was being sold on the West Coast for 67.6 cents, according to figures from the Alaska Department of Revenue. According to OPIS data, a gallon of pure 87-octane gasoline (with no ethanol added) was being sold at the refinery for an average of $1.24 per gallon.

That price is much higher than it is east of the Rocky Mountains. “There has historically been a disconnect between Alaska and the rest of the country,” explained Los Angeles energy consultant Barry Pulliam, and there is another disconnect between the West Coast and the rest of the country.

Making matters worse were refinery problems in California, which decreased supply in the region.

Pulliam has extensive experience consulting with the Alaska Legislature and Alaska Attorney General’s office on gasoline and oil issues, and he compared the West Coast to an island, and Alaska to an island within that island.

“Once you get on the other side of the Rockies, the rest of the U.S. is pretty integrated as far as product supply,” he said. That makes competition easier and prices lower.

OPIS analyst Cinquegrana had a more concise answer: “You guys are in Alaska, and — for lack of a better word — are screwed.”

 

Windows shut

In Alaska, there’s little public access to the costs of transportation and the overhead incurred by the distributors and transporters who carry refined gasoline from the Washington refineries to Juneau. The state doesn’t require distributors to post their costs, and they generally don’t on their own.

Cinquegrana speculated that the federal Jones Act, which mandates U.S.-built ships and American crews sail routes between U.S. ports, could contribute to high transportation costs. In the Gulf of Mexico, Jones Act requirements mean transportation costs of 25 cents per gallon or more between Texas and Louisiana refineries and Florida’s west coast. In areas where foreign-flagged vessels can be used, the comparable price might be three to five cents per gallon.

The first window of price access in Alaska is at the fuel depots. On Wednesday, the Empire surveyed the three Juneau depots, asking the per-gallon price for a bulk purchase of 6,500 gallons of 87-octane gasoline, both delivered and to be picked up at the depot. Sixty-five hundred gallons is roughly equivalent to the capacity of a single shipping container-sized tank.

Taku Oil Sales offered $2.80 per gallon at the terminal, plus tax. Delta Western’s price quote was $2.92 per gallon, taxes included. Petro Marine offered the best price: $2.13 per gallon, before tax.

Those prices are somewhat misleading from the view of someone who buys from a gas station — large retailers like Fred Meyer and Safeway typically operate under long-term contracts that mean they pay a lower, fixed price from the wholesaler. Their true cost is kept confidential.

Safeway and Fred Meyer corporate officials did not respond to emailed and phoned questions about their gasoline sales, and most Juneau gas station owners and managers would speak only off the record — if at all.

The exception was Steven Fuller, who for the past three years has managed Fishermen’s Bend in Auke Bay. On Friday, his gas pumps posted $2.65 per gallon, the lowest price in Juneau. But ask him why he has the lowest price in town, and he comes up blank.

“I have no idea,” he said. “I’ve been doing everything the same since I took it over three years ago.”

 

At the pump

Fuller said his distributor is Petro Marine, and his last purchase had a per-gallon cost similar to the quote provided to the Empire. There’s plenty of other expenses between the distributor’s price and the one posted on the pump, Fuller and others said.

From electricity to property taxes, gas stations have the same expenses that any other business does, various station managers told the Empire. Those expenses are factored into the cost at the pump.

There’s fire insurance, and fuel tank inspections — the state requires one per year, and a third-party inspection every three years — plus spill-response planning and insurance to cover the cost of a spill if one happens. The same is true for distributors.

“You have to comply with all the government regulations, pay taxes and all of those kind of things that come with running a business,” Miller said.

“It’s a lot more than just coming and getting fuel out of a tank,” Fuller said. “It’s not a cheap thing with insurance and that kind of stuff. It costs a lot to have the gas station even running.”

A few competing gas station managers pointed out that Fishermen’s Bend doesn’t have a human being staffing its pumps — they’re all card-operated — and saves money that way. Every other publicly accessible gas station in Juneau has at least a clerk on site, and some also have on-site service stations with mechanics.

There’s also a significant number of taxes on gasoline. The federal government charges 18.4 cents in taxes on each gallon of gas sold. The state adds another 8.95 cents (proposals to raise that tax, the lowest in the nation, haven’t gone anywhere yet). The City and Borough of Juneau adds a 5 percent sales tax. For a gallon of gasoline sold by a wholesaler at $2.80, that’s 14 cents.

 

Competition, or lack thereof

Transportation costs, the West Coast’s isolated gasoline market, the costs of retail operations, the cost of distribution and taxes account for much of the price difference between Juneau and the Outside, but they may not account for it all.

In 2002 and again in 2008, the Alaska Attorney General’s office conducted statewide investigations to determine whether distributors and/or refiners were working together to manipulate the price of gasoline as crude oil prices declined. In both cases, Pulliam was hired as a consultant by the Alaska Department of Law. In both cases, no manipulation was found.

Pulliam said Juneau’s current prices don’t necessarily indicate “there’s anything anticompetitive going on; it just means that’s the nature of how competition works where there are fewer suppliers.”

Alaska doesn’t have a price-gouging law. Voters have repeatedly said they want to allow markets to decide pricing, and that means distributors and gas stations can charge what they want. The law is broken only if competitors work together to set prices.

Pulliam said that law doesn’t mean that stations can’t compare prices and match them.

“Maybe I’ve decided I want to be two cents below you or two cents above you,” he said, offering a hypothetical example. “If you and I were the only grocers in town and the barge comes in every month … we maybe can get a feel how each other price and compete.”

In a purely level market with no barriers to entry, an outside competitor could come in and force prices down. That happens east of the Rocky Mountains, where significant infrastructure means oil and gasoline can move easily, and competitors can beat one another on price. “In someplace like Houston, prices move VERY quickly,” Pulliam said.

Szymoniak said that isn’t the case in Southeast Alaska, where someone intending to compete on price would have to set up a whole distribution infrastructure. There are no unused or under-used fuel depots in Juneau, and a new competitor would also have to arrange barge transportation to Juneau from Washington state or British Columbia.

Contributing to the slow pace of price changes are transportation issues. Miller said Crowley sends a barge north every 20 days; other distributors’ barges arrive on a weekly or biweekly basis.

When a barge arrives at a depot, its fuel is pumped into a tank that may have fuel left inside. If that happens, the price of the fuel in the newly filled tank is the average of the old fuel and new fuel, with the average weighted by how much fuel was old and how much was new.

In 2010, Szymoniak and his co-authors wrote that the pace of transportation and the lack of outside pressure creates a lag of about two months between the refinery and the gas pump in parts of Alaska away from the Railbelt. If a refinery price changes in January, the report stated, the gas pump price might not change until March.

Statistics contributed by Juneau drivers and the federal Energy Information Administration agree with that assessment. Prices may not be falling as fast as they are Outside, but they are beginning to fall, and bigger changes are coming, Pulliam said.

“We’re seeing prices on the West Coast drop pretty rapidly here in the last week or so,” he said. “You haven’t seen the movement yet in Southeast, but I’d expect that you’d start to see it fairly soon.”

 

When calls stop

In the first week of February, Juneauites abruptly stopped calling “Problem Corner” to complain about gas prices. The normal garage sales came, and so did political and election talk, but no one was talking about the price of fuel anymore.

At Fred Meyer and Safeway, the posted price of gasoline read $2.99 per gallon.

“We’d broken that psychological barrier,” Bryson said. “Nobody talked about it after that; I didn’t get one single call.”

As of Friday, the Fred Meyer price sat at $2.92 per gallon, not the lowest in town, but not the highest either.

Sitting in the KINY studios, Bryson said he believes Juneau wasn’t just upset about the prices — people were upset that they didn’t know why.

“When there wasn’t an explanation, when there wasn’t a reason there, that’s when I was like — wait a second, this is what gives businesses a bad rap,” he said. “If everybody had an understanding of it, it’s a lot more palatable. You’re going to be willing to pay a little bit more if you understand it.”

Gas prices have dipped below the $3 level in Juneau for the first time in years, seen here at Safeway on Wednesday.

Gas prices have dipped below the $3 level in Juneau for the first time in years, seen here at Safeway on Wednesday.

Pumped up: The concealed truth behind gas prices

Gas prices have dipped below the $3 level in Juneau for the first time in years, seen here at Safeway on Wednesday.

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