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Why Are Alaska's Gasoline Prices So High? 2 Senators Disagree Over Cause

August 31, 2012|By Dan Fiorucci

ANCHORAGE, Alaska — 10 days from now, on September 10th, the State Senate will hold a field hearing in Fairbanks to try to get at the bottom of a nagging question:

    Why are gas prices in Alaska so high?

    This evening (Friday) the website "GasBuddy.Com" showed that Alaska was 41st in the nation in gas prices. In other words, 40 states had gasoline cheaper than ours!

    While the average price of a gallon here is $3.93, in Colorado -- the cheapest gasoline-state in the nation -- it was $3.52 -- nearly 40 cents lower.

     So what's going on?

     State Senator Bill Wielechowski (D-Anchorage) suspects that it's "price-gouging" on the part of refiners. There are only two refiners in the state, Flint Hills and Tesoro. Wielechowski says there's just not enough competition between them.

    The Senator has obtained a graph -- from Alaska's Office of Legislative Services -- which shows that in 2008,  the profit margins for Alaska refiners began to diverge from those in the Lower 48. He says that's when Alaska refiners started to make more money, in fact lots more money, than refiners in other parts of the country.

     According to that graph,  Alaska refiners -- at the time -- made up $1.20 a gallon more than their counterparts in the rest of the U.S.

    However, by January of this year, the last point in which data were available, those margins had slimmed to about 20 cents -- with Alaska refiners showing higher charges for gasoline.

    Wielechowski doesn't understand why Alaska margins should be higher than they are in the rest of the country. And this summer, he -- and 2 other state senators -- are investigating the matter. 

    But Alaska State Senator Cathy Giessel (R-Anchorage) says Wielechowskis's concerns are misguied.

    Giessel says the reasons for the higher charges by Alaska refiners are simple:

    For one thing, the price of oil in our state is higher than in much of the nation. Today (Friday August 31), for example, a barrel of Alaska North Slope Crude sold for $16 dollars a barrel more than West Texas Intermediate Crude. WTI is the kind of oil used by many refineries in the Lower-48.

    But Wielechowski is not entirely convinced by Giessel's argument.

    He says that it only explains part of the differential. He says that while Flint Hills Refinery -- in North Pole -- uses ANS Crude to fuel its refinery, Tesoro -- in Kenai -- uses Cook Inlet Crude. Wielechowski says that Tesoro acquires that crude at WTI prices, and therefore it should be producing more expensive gasoline.

    In addition, Wielechowski says, Flint Hill gasoline is not sold in Anchorage, so the prices in Anchorage should not be higher than in the Lower 48 -- if Tesoro is paying WTI prices.

    Finally, according to Wielechowski, Tesoro is responsible for 80 percent of the refining in Alaska. So the fact that Flint Hills is paying more for its oil really shouldn't make that much of a difference. Because Flint Hills' gasoline is only a small part of Alaska's overall market -- and it is not sold here in Anchorage.

    However, Giessel says there is an additional reason Alaska gasoline is so expensive: The higher cost of electricity here.

    Large amounts of electricity are needed to refine oil.

    According to Giessel, Tesoro pays roughly 12 to 14 cents per kilowatt hour for electricity, while Flint Hills pays 17 cents. Those prices, she says, are much higher than refiners pay in places like Washington State for their electricity. That's important, because when you have to heat oil to 600 degrees farenheit to refine it into gasoline, energy costs represent a significant fraction of your expenses.

    Giessel claims that refiners in Washington State pay a subsidized rate for hydroelectric power: a rate of only about 4 cents a gallon, giving them a big advantage. Wielechowski cedes that point, but says that difference in electrical rates fails to explain price differentials -- like the $1.20 a gallon spike -- that suddenly erupted onto the scene Alaska refineries in 2008. 

     But Giessel says there is another reason for refinery price differences here -- comparted to the Lower 48. She points out that the flow of oil through the Trans Alaska Pipeline has diminished. Back in 1989, it was 2 million barrels a day. Today it's around 550,000.

    That's important, she says, because when the pipeline was full, oil flowed through it at temperatures of 110 degrees farenheit or more.

    Now that same oil flows at temperatures well below 40 degrees farenheit. Therefore refiners are now paying more money to heat the oil from a much lower starting point in the refining process.

    But again, Wielechowski argues, this is a valid point only for the Flint Hills Refinery which -- he says -- gets its crude from the North Slope. But cold oil is not as big an issue in Cook Inlet where, he says, the other major refiner, Tesoro, gets its oil.

    So tonight the two Senators disagree about whether price-gouging is going on. Officials from the Flint Hills refinery are expected to weigh-in on the subject -- with testimony -- when the State Senate holds field hearings in Fairbanks on September 10th.

    An additional senate hearing will be held in rural Alaska this autumn.

    And then, in January 2013, lawmakers in Juneau could again take up the issue of whether new legislation is needed to rein in pricing on Alaska gasoline.

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