Business

In a state without crude oil or refineries, Idahoans are hit hard at the pump

Idaho reached a milestone when the price of regular gas dipped below $2 a gallon at Idaho stations last December. For the first time in anyone’s memory, the Gem State recorded the lowest gasoline prices in the nation.

“I can’t recall a time when that’s happened,” said Brett DeLange, an assistant attorney general who heads the Consumer Protection Division of the Attorney General’s Office and has monitored gas prices for eight years.

Crude oil prices had collapsed, but refiners continued processing crude oil, leading to a supply glut.

“Supply just exceeded demand. And when you’ve got too much of something, you cut the price,” said Charley Jones, owner of Stinker Stores, a Boise company with 65 stores in Idaho.

Flash forward six months. Idaho today is back where it normally sits among the 50 states: near the top of the price range for motorists looking to fill their tanks.

At the end of May, Idahoans paid the ninth-highest gas prices in the nation, according to a comparison compiled by the Attorney General’s Office. A gallon of regular gas cost $2.88, on average.

Californians paid the highest price, $3.72, with Idaho’s neighbor to the south, Nevada, No. 2 at $3.31. Other nearby states, Washington, Oregon and Utah, were fifth through seventh, with gas costing $3.04 to $3.06.

Idaho’s average prices tend to exceed the national average slightly, even though the state’s gas tax is about a nickel below the national average. And Treasure Valley prices often exceed the statewide average, which is brought down by frequently lower prices in cities like Coeur d’Alene and Pocatello.

Crude oil drives prices

Many drivers figure oil company executives sit around figuring out ways to gouge consumers for as much as they can. DeLange, Jones and other Idaho gasoline-industry leaders say the pricing structure is more complicated than that.

The cost of crude oil is the biggest single factor that goes into determining how much motorists pay at the pump. Crude oil prices are highly volatile. They are determined on a global basis driven by supply and demand.

Over the past year, the cost of a barrel of crude — which holds 42 gallons and produces 19 gallons of gasoline, along with other products — has fluctuated greatly. It went from a 52-week high of $97.27 on June 26, 2014, to a low of $47.46 on March 18, according to The Wall Street Journal.

Last month, the cost of crude oil accounted for 52 percent — $1.41 — of the price of a gallon of gas in Idaho selling at $2.73. The remaining $1.32 was 2 cents less than what AAA says is the national-average difference between the cost of crude and the price of a gallon.

On Wednesday, crude oil was selling for $60.93. The U.S. Energy Information Administration blames recent higher gas prices on the rising cost of crude oil and outages at two refineries in California and the Midwest.

The agency predicts crude oil prices will average $61 per barrel through the end of 2015 and $67 a barrel next year. It expects gas prices to decline nationally through the end of this year, averaging $2.43 per gallon of regular for the next six months.

The retail cost of gas generally lags behind increases and decreases of crude oil. But retail prices rise faster than they fall.

“As prices go up, retailers are hesitant to keep increasing,” DeLange said. “They don’t want to be the first one to increase. But as the wholesale prices drop, they also want to hold on a little bit longer to that previously higher price.”

Idaho, like neighboring Oregon, endures high gasoline prices in part because it contains no oil reserves and no refineries. Southern Idaho depends on one company’s pipelines to deliver all the fuel we put in our cars and trucks.

Gasoline comes to Southern Idaho, including the Treasure Valley, through one of two 65-year-old, 8-inch-wide underground pipelines running in parallel from Salt Lake City. The second pipeline carries other fuels, including diesel, jet fuel and heating oil. The pipelines are now owned by the Tesoro Corp.

Although the state says it has no evidence of price gouging, the lack of an alternative supply means there is no competition to help keep delivery costs down.

“When you have one source of supply, supply and demand in our capitalist system dictates that that supplier is pretty empowered,” said Jones, whose company also operates its own gasoline delivery fleet through Westpoint Transportation.

Idaho shares this plight with other Western states, said Dave Carlson, director of government affairs for AAA Idaho in Boise.

“It goes without saying that much of the West — not just Idaho — is held hostage to its own lack of alternate supplies to gasoline,” Carlson said. “If you have limited numbers of refineries in this region, it stands to reason that once there is a shortage, for whatever reason, prices can go up.”

Utah and Wyoming have five oil refineries each, Montana has four and Colorado two. The Utah refineries, which obtain crude oil from Utah, Colorado, Wyoming and Canada, supply about 70 percent of the gasoline and diesel consumed in Utah and Idaho.

Shipping costs would wipe out any savings that might result from buying fuel from more-distant refineries, since they likely would have to be brought by truck.

“There are times when the stars align correctly and that does happen, you do get somebody trucking gasoline into the state,” Carlson said. “But, generally, it doesn’t work because of the cost.”

Idaho gas brought by pipe

The twin pipes carry fuels to three complexes of storage terminals one large, one medium-sized and one quite small — off North Curtis Street, near Saint Alphonsus Regional Medical Center on the Boise Bench. The big terminal is operated by Tesoro, based in San Antonio; the midsized one by Sinclair Oil, based in Salt Lake City; and the small one by United Oil, of Twin Falls.

A spur line takes off near Burley, delivering gas products to Pocatello. Other spur lines provide jet fuel to Mountain Home Air Force Base and to Gowen Field in Boise.

It takes 66 hours for gasoline and 90 hours for other products to reach Boise on the 706-mile journey from Salt Lake City. A water plug separates the different fuels in the second pipeline and different-octane fuels in the gas pipeline.

The Tesoro Pipeline supplies 2.8 million to 3.1 million gallons of motor fuel per day, and it runs near capacity, according to the Attorney General’s Office.

Ethanol, detergents and other additives determined by branded-gasoline suppliers such as Chevron, Shell and Sinclair are added at the local terminals. Jones’ stations sell Sinclair gas.

“Each of the terminals has dedicated ethanol storage, and when one of my tankers shows up to pull a load of fuel, we specify the octane level and our producer, Sinclair, has their additive package that they blend in,” Jones said. “Computers take care of the mix of that cocktail of products, and that’s what becomes Sinclair-branded gasoline. The same goes for Chevron, Shell, Texaco, those guys.”

The pipelines continue beyond the Treasure Valley, carrying fuel to terminals in Pasco, Wash., and Spokane.

Those cities have more sources of supply. North Idaho mostly gets its gas from refineries in Billings, Mont. That fuel is shipped through the Yellowstone Pipeline to terminals in Spokane. Other gasoline from the Puget Sound near Seattle is sent to Portland through a pipeline and then barged up the Columbia River to Pasco and a terminal near Lewiston at Wilma, Wash.

The greater number of suppliers means gas prices in North Idaho tend to be lower than in Southern Idaho . The average cost of a gallon of regular gas Friday was $2.79 in Coeur d’Alene, $2.90 in Pocatello and $3.04 in Boise, according to AAA. The national average was $2.80. The lowest Boise price Friday on GasBuddy.com, which relies on anecdotal motorist reports, was $2.91.

Gas in Pocatello is cheaper than in Boise because of Bannock County’s higher elevation, 4,462 feet vs. 2,704 feet, Carlson said. Regular gas in Eastern Idaho has a lower octane rating than in Southwest Idaho and requires less refining. The higher the elevation, the lower the octane needs to be to allow adequate firing of an engine’s cylinders.

“Eastern Idaho has a cheaper grade of gasoline,” Carlson said. “It’s an 87-octane gasoline once you add ethanol as an octane enhancer. Otherwise, it would be an 85-octane gasoline, which is cheaper to produce.”

Two decades ago, diesel cost significantly less than regular gas. By 2006, diesel had become more expensive because of increased world demand, especially in Europe and Asia. On Thursday, retail diesel prices were $2.89 in Pocatello, $2.93 in Lewiston and $3.05 in Boise, according to Gas Buddy.

Taxes add up

There are several other costs besides crude for each gallon you buy.

One of the biggest is taxes. Federal and state taxes add 43.4 cents to the cost of every gallon of gas and $49.4 cents for each gallon of diesel sold in Idaho. The federal government collects 18.4 cents a gallon, while the state takes 25 cents. The money pays to maintain roads and bridges and to build new roads.

Idaho’s gasoline and diesel excise tax is set to increase by 7 cents beginning July 1. The increase, the first since 1996, is expected to raise an extra $63.2 million a year.

After the increase, Idaho’s 50.4-cent combined tax will be slightly higher than the national average of 48.9 cents. Pennsylvania charges the highest tax, 70 cents per gallon. Alaska charges the lowest, 29.7 cents.

In addition, nearly a third of the cost of a gallon of gasoline goes to refining, costs for retailers and profit margins.

Adding ethanol adds to the price, too. Most fuel blends include 10 percent ethanol. Congress in 2007 ordered refiners to increase the blending of their gas with ethanol to promote plant-based alternatives to fossil fuels from hostile foreign nations. Most retailers sell blended fuel, although more than two dozen stations in Southwest Idaho sell ethanol-free gas.

Finally, there are profit margins for the companies involved. For retailers, margins swing wildly. Since 2009, profit margins in Idaho have typically ranged from 12 to 25 cents per gallon, said DeLange, citing data from the Oil Price Information Service. They reached 34 cents for Boise-area retailers last fall and climbed to 61 cents in late December, when retail prices were at their lowest.

“That’s just not the case now. The high margins are at the wholesale level right now,” DeLange said.

Even seemingly unconnected events can cause gas prices to soar.

A February fire at Exxon Mobil’s Torrance refinery outside Los Angeles — nearly 900 miles from Boise — brought higher prices in Idaho.

The refinery, which isn’t expected to complete most repairs until the July 4 weekend and has continued to produce well below capacity, is a major supplier to the Las Vegas area.

With supplies disrupted, Las Vegas dealers looked elsewhere for gas and found it — in Salt Lake City.

“So what that meant is that Idaho was cut short,” Carlson said.

Attorney General’s probes

Since 1998, the Idaho Attorney General’s Office has conducted three investigations into motor fuel prices. No violations of Idaho law were found in reports issued in 1998, 2006 and 2008.

The Idaho Competition Act prohibits price fixing through a conspiracy by two or more sellers but does not prevent companies from monitoring other stations’ prices or charging the same amount, DeLange said.

“The bottom line is that the law does not prohibit high prices, even if it’s gouging. Unfortunately, that’s the lay of the land,” DeLange said.

A second state law, the Idaho Consumer Protection Act, does prohibit gouging in limited circumstances. It outlaws charging an “exorbitant or excessive price” during a disaster or emergency following a declaration from the governor or U.S. president. The law does not establish when a price becomes exorbitant or excessive. Incidents are examined case by case.

Jones, from Stinker Stations, said his company is acutely aware of the going price for gas in each of its markets.

“We do price discovery every single day for every one of our stores,” he said. “We check our competitors’ prices and try and price our product competitively.”

Stinker was founded in 1936 when 20-year-old Farris Lind opened his first station in Twin Falls. He quickly earned a reputation as a “stinker” for selling his gas for less than the major oil companies’ stations.

Pipeline sale brings no price changes

Two years ago, Tesoro Logistics bought the pipelines between Salt Lake City and Spokane from Chevron for $355 million. The purchase included Chevron’s terminal on the Bench.

The pipelines are considered a public utility, so Tesoro must charge uniform prices regardless of who is shipping fuel. Tesoro’s charges add only a few cents to the cost of a gallon of gas — a practice that has not changed, Jones and DeLange said.

Tesoro already had a Boise storage terminal when it bought Chevron’s. So the Federal Trade Commission ordered Tesoro to sell its existing Boise terminal . The FTC feared gas prices in Boise would increase if Tesoro controlled two of the three terminals. Tesoro sold its terminal to Sinclair Oil.

The former Chevron terminal that Tesoro now owns has 25 tanks with a capacity of 18 million gallons of fuel, according to a filing with the Idaho Department of Environmental Quality. Eight additional tanks store additives, including ethanol. The terminal owned by Sinclair includes eight storage tanks that hold 5 million gallons of fuel, according to the DEQ. The United Oil terminal has a capacity of 2,900 gallons, according to Greg Weigel, an inspector for the Boise office of the U.S. Environmental Protection Agency.

None of the terminal operators returned calls seeking comment for this story.

The Statesman also tried to reach John Jackson, CEO of Jackson Food Stores, which operates more than 200 stores in five Western states and operates its own gas transportation fleet. An assistant said he was out of town this week and was not available for comment.

In the end, Jones said, no one cares what he pays for gas or for Stinker Stores overhead. He said he understands that people are concerned only with the prices they pay when they stick a gas station’s nozzle into their filler pipe and start pumping.

“The price of fuel is the price of independence, if you will,” Jones said. “You can get in your car and drive wherever you want and get you there. There aren’t good alternatives to that in the rural West. That’s how you get around. That’s why people are so passionate about the pricing.”

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