Opinions

Fairbanks drivers paying premium on gasoline as prices drop slowly

FAIRBANKS -- Something's wrong with the gasoline price signs in Fairbanks.

Instead of prices close to those in Anchorage, the signs are showing a 60-cent premium in Fairbanks.

The powers that be at our premier gasoline dealers -- Fred Meyer, Safeway, Sam's Club, Tesoro, etc. -- might want to check their numbers. Perhaps it's a math mistake or an electronic glitch from the power outage last week. More likely it just proves the adage that gas prices never drop as fast as they rise.

Until one of the big retailers drops the price, the others are not going to move. There is nothing illegal about keeping prices high -- or cutting them -- unless the companies communicate with each other.

Of all the daily pricing decisions store owners and managers make, this one has the highest local profile. Unlike other products, retail gasoline prices are posted prominently at every place with a pump, so many people track this more closely than the cost of a gallon of milk. Then again, most people don't buy 20 gallons of milk at once.

In Fairbanks, a lot of people use gasoline price figures from Anchorage as a benchmark for ready comparison. I've been hearing more than the usual grumbling in recent weeks.

The average Anchorage gas price on Wednesday, according to AAA, was $2.64, down 58 cents in the past month. The Fairbanks average, also according to AAA, is $3.26, down 22 cents in the past month. The Juneau average was $3.46, down four cents in the last month.

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The national average is $2.30, down 19 cents in the past month. The gap between the Alaska numbers and the national average is understated because Alaska has the lowest state gas tax in the country, 8 cents.

Many people in Fairbanks believe that in an ideal world, gasoline here should be no higher than it is in Anchorage, and preferably cheaper than it is in Texas. Tapping into the first part of that sentiment, former Gov. Frank Murkowski attached a requirement for wholesale price parity with Anchorage to a royalty oil sales contract with Flint Hills in 2003. That was in effect for a decade.

The gap between Fairbanks and Anchorage prices was seven cents a gallon between 2002 and 2007, a 2008 state report found. A year ago, the gap was about 19 cents a gallon.

One thing that has changed is that the Flint Hills Refinery in North Pole -- which used to produce about 15 percent of the gasoline in Alaska -- stopped refining in 2014. It's not clear how much of the growing gap today is because of the refinery situation and how much is because retailers are slow to respond to lower wholesale prices. Crude oil prices are back down below $50 a barrel.

When the gasoline price gap with Anchorage swells beyond 15-20 cents a gallon -- a range some Fairbanks drivers grudgingly admit might be justified -- the community consensus is that Fairbanks is getting screwed. In the decades I've been writing about this, I don't recall a time when gasoline in Fairbanks was this much more expensive.

In Anchorage, Fred Meyer was selling regular for $2.59 a gallon Wednesday, 60 cents less than in Fairbanks. There was a similar price gap at Tesoro, Holiday, Safeway, Sam's Club and Chevron stations.

A spokesman for Tesoro said the "market place and market conditions, such as supply and demand, determine the price that consumers pay at the pump."

"Recent wholesale price declines have been reflected in the Anchorage and Mat-Su Valley markets over the last several weeks. Fairbanks markets have been slower to react," said Tesoro spokesman Matt Gill.

Yes, Fairbanks markets have not been in a hurry to change.

The source of supply is pretty much the same, as the only refinery now producing gasoline in Alaska is Tesoro's on the Kenai Peninsula. Some of the gasoline from Tesoro gets shipped north to Fairbanks on the Alaska Railroad, finds its way to the fuel terminal at Flint Hills and then to local retailers.

The price of gasoline in Alaska is set by whatever the market will bear, not by the government. For the moment, the Fairbanks market is bearing a good deal more than Anchorage, which is bearing a good deal more than the Lower 48.

In early September, Fairbanks Rep. Scott Kawasaki asked Gov. Bill Walker to "begin an investigation regarding the retail price of fuel in Alaska, specifically why reductions in price significantly trail reductions in price nationwide."

It's likely that any investigation would lead to the same conclusions reached in a 2008 AG report on gas prices.

"When few competitors account for the majority of sales, the market is known as an oligopoly," that report concluded.

"Based on this market structure alone, it is unrealistic to expect that gasoline prices in Alaska should be the same as prices in other parts of the country. The level of competition and available sources of supply in the Lower 48 create supply and demand conditions that are not present here."

In deciding how much the market will bear, companies make judgments about keeping customers satisfied and responding to what other companies are doing. Alaska had the second-highest gas price in the country Wednesday, $2.89 per gallon, three cents below California, where total gas taxes are 30 cents a gallon higher than in Alaska.

Average gas prices are now below $3 in every state, according to AAA. The Alaska average would be even lower, if the Anchorage-Fairbanks price gap would return to levels we've seen in the past.

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A 2001 report by the Alaska attorney general remains relevant today. It said that when there are relatively few sellers, "it is easy for sellers to develop a 'live and let live' attitude toward their rivals that would not be possible to maintain in a competitive market."

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints.

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.

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