Gas prices
trickle, motorists wonder AAA explains shortage, high cost of
fuel
By Scott Nicholson
High gasoline prices don’t begin with a trickle at
the gas pump — they have their origins in Houston.
An Ingles station in Jonesboro,
Tenn. shows a price of $2.74 per gallon of unleaded gasoline
on Monday, compared to Boone’s $3.69. Photo
by Bruce Morrison
Local gas supplies are still restricted because of refinery shutdowns
in September, though damage from hurricanes Ike and Gustav was
generally less than expected. However, getting the system flowing
at full speed has taken some time, and not all gas stations have
the same spigot into the distribution system.
Industry advocates say there are legitimate reasons that High
Country’s prices, which are only now beginning to see a decrease,
are as much as 50 cents higher than those less than 50 miles away.
When prices remained steady locally last week at $3.85 per gallon,
prices in Mountain City, Tenn. and Spruce Pine were between $3.35
and $3.40.
Local prices have dropped throughout the week to around $3.50,
but many motorists still wonder why regional distributors cannot
stay competitive with gas suppliers in neighboring counties.
“We have the highest prices in the nation on highest 48 contiguous
states, while our prices our dropping,” said Carol Gifford,
spokesperson for AAA Carolinas. “It is still based on the
fact that we had such an acute shortage for such a long period
of time and the distribution. It’s been a much-longer-term
impact than we would expect.”
Gifford pointed out that gasoline production is a private industry
and operates under free-market laws of supply and demand.
“We are really dependent on oil companies and their decisions
and they can move around supply however they want to do it,”
she said. “Companies decided to look at other sources, bringing
gasoline on trucks from Midwest and Northeast and bringing gasoline
on barges to ports in North Carolina. This was an expensive delivery
for them and accounts for some of the high prices.”
“We are actually in a declining price trend right now across
the industry and across the country,” said Bill Weatherspoon,
executive director for the North Carolina Petroleum Council, a
trade organization that is part of the American petroleum Institute.
“North Carolina prices have actually declined from their
recent record highs. The damage to the refineries and the aftermath
and getting back to normal has interfered with the downward price
trends.”
Weatherspoon said since the Southeast is served primarily through
a gasoline pipeline, its supply is not as easily replaced as tin
traditional tanker-served areas. That’s why crude-oil prices
have dropped but local prices are still among the highest in the
country.
“Other areas have reflected the decline in price of crude
oil much more quickly, portending that there’s good news
around the corner,” Weatherspoon said. “What we’ve
experienced here is the uncertainty of supply.”
About 85 to 90 percent of gasoline in North Carolina comes from
the pipeline, which is actually two separate pipes built during
World War II. The Colonial pipeline runs from Houston to New York,
while the Plantation pipeline runs from Baton Rouge, La. to Washington,
D.C. The pipeline has distribution points along the way where
gas is stored and then carried to regional stations via tanker
trucks.
Most gasoline comes to the Boone area from Spartanburg, S.C. Other
North Carolina distribution points are in Charlotte, Greensboro,
Selma, Fayetteville and Wilmington. Since Charlotte was one of
the areas experiencing the greatest gas shortages, simply having
a storage facility doesn’t ensure an adequate supply.
With shutdown of refineries along the Gulf of Mexico, the pipeline
was carrying less gasoline, and that shortfall and gaps in the
distribution service are still being filled.
Weatherspoon said the supply problems started with the shutdown
of the refineries. “The refinery is to oil industry what
a bakery is to the bread business,” he said.
During the shortages, oil companies were sending tankers from
the Midwest and even using seaports to deliver supplies. That
added additional costs to suppliers.
Individual gasoline retailers have individual contracts, typically
with a brand-name chain such as Mobil, Citgo or BP. Stations that
have contracts were more likely to receive allocations of supply,
though Weatherspoon said the allocations were typically made based
on a percentage of the amount usually delivered.
Independent retailers buy their supplies on the spot market based
on available gasoline supplies.
“In a shortage or a tight-inventory market, there is no gas
available,” Gifford said. “That’s why you saw some
of the smaller stations shut down their pumps for a week.”
Gasoline taxes also affect price discrepancies across the nation.
North Carolina’s gasoline tax is 48.6 cents per gallon, which
includes a federal excise tax of 18.4 cents a gallon. In Tennessee
the tax is 39.8 cents, in Virginia it is 38 cents and in South
Carolina it is 35 cents a gallon. However, local prices have outpaced
Tennessee prices by as much as 50 cents.
Both Gifford and Weatherspoon say gas stations don’t make
their money at the pump. Instead, gasoline is often a break-even
product that entices customers into stores to spend money. Stations
that don’t have gasoline, even at high prices, may be feeling
the pinch.
“Certainly in the past few years, gasoline is not a money
maker for the retailers,” Gifford said. “They make their
money on the sale of other items. I know that’s hard to believe
when people see high gas prices and oil companies are making record
profits.”
Weatherspoon said retailers might be keeping pump prices a little
higher to make up for business lost during slow days or when they
had no gasoline to sell. “That particular retailer is suffering
from a loss of business because he doesn’t have product to
sell,” he said. “Common sense tells us that most of
the gas retailers have transformed their businesses in recent
years to include a convenience-store offering. We can get bread
and milk and beer and everything else.”
Retailers balance “inside sales” versus gas-pump sales.
“Drivers will drive along and look for gasoline,” Weatherspoon
said. “If they see the brown bag or plastic bag over the
pump, then that means you’re not going to sell as many potato
chips and milk.
“They won’t reduce pump price because of business losses,
and we’re probably seeing some of that across the market,
to make up for days when they were out of business,” Weatherspoon
added.
“The companies were actually not making huge profits in this,
if any profit,” Gifford said. “When they were spikes
in the wholesale gasoline, gasoline distributors had to pay to
get that gasoline in. Motorists noticed steep increases in gasoline
but in many cases it didn’t cover the costs of that retailer
for gasoline that was in high demand.”
Gifford said even though gasoline retail is a private industry,
some planning may help head off future shortages. Some state officials
are hoping to hold a roundtable discussion that prepares for emergencies,
bringing oil companies, retailers, and legislators together to
create distribution plans. At present, the government has little
role in distribution, aside from the governor’s authority
to enact price-gouging laws in a declared state of emergency.
“The lesson that all the stake holders learned from this
hurricane and its outcome is we need to have some kind of contingency
plan in place,” Gifford said. “If gasoline isn’t
flowing freely through the pipeline, where are we getting our
gasoline?
“States are putting together working groups featuring retailers,
distributors and others concerned about the situation. We expect
there’s going to be ongoing conversation about how to improve
the situation.”
Weatherspoon said the shortages pointed out the state’s dependency
on the pipeline and a distant energy source, suggesting offshore
drilling in North carolina would allow for more diversity in supply.
If hurricanes threaten one area, gasoline would still flow from
another.
Statewide pump prices are expected to stabilize near national-average
prices in the next week or two. Thursday, gas was reportedly dropping
about 20 cents a gallon across the state, though pump prices in
the Boone area made more modest drops of around seven cents a
gallon.
“The price of crude oil is down and we know the market is
going to find that appropriate equilibrium between price of crude
and price of retail,” Weatherspoon said. “It seems to
work in a down market and an up market. I expect as we reach normal
market circumstances that we’re going to see the same thing—the
history of the relationship between crude oil and the retail price
of gasoline.”
Weatherspoon said that even with planning, dependence on the pipeline
could mean future shortages in the event of natural disasters.
But such events remain as difficult to predict as tomorrow’s
gas prices. However, Weatherspoon believes the history of the
gasoline market points to lower prices in the weeks ahead.
“The good news here is that prices are headed for friendlier
levels for the consumer and it’s dictated by the price of
crude,” said Weatherspoon.
Last week, N.C. Sen. Steve Goss (D-45) asked state Attorney General
Roy Cooper to launch an investigation into the lingering gas shortage
in northwestern North Carolina.
“We also need some explanation as to why the price of gasoline
at the pump has not decreased more rapidly,” he said.
“Understanding that there is a delay of several weeks for
the wholesale price of gasoline to be reflected at the pump, I
believe that four-to-six weeks of decreasing wholesale prices
have not been passed along properly to the public.”
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