The cost of home heating was hard to stomach for most Fairbanks residents this winter. I paid $3.73/gal for home heating oil this fall but called Sourdough Fuel on March 16 to find it had gone up to $4.44/gal. While talking with a client, I learned she and her husband have spent nearly $6,000 so far this winter to heat their 1,800-square-foot home. Some people are asking if remaining in Fairbanks is viable. Others are looking for financial help or economically viable solutions. On a local level, state politicians cite price gouging by Alaska's refineries, but globally the price of petroleum is controlled by other factors.
As long as I have been in Alaska (nearly 17 years) I have heard one persistent question, "Why do we pay so much more for fuel if we live in an oil producing state?" Alaska is the second largest oil producer in the U.S. after all. With the exception of some rural communities in Southeast and Western Alaska, all of our heating fuel and gasoline are refined in state. Refined fuel has not been shipped into Anchorage in over ten years, nor Alaska's oil exported to foreign countries since 2004. Alaska's refineries have been accused of price gouging.
Two previous investigations by the Alaska attorney general's office in 2002 and 2009 found no evidence of collusion or other illegal antitrust behavior among Alaska's gasoline refiners (Tesoro and Flint Hills). PetroStar, Inc. (PSI), located in Fairbanks and Valdez, refines Alaska heating oil. PSI is not cited in the report but, like Flint Hills, receives its crude oil directly from the trans-Alaska pipeline (TAPS). Both companies inject heavy, processed crude back into the TAPS after gasoline or heating fuel is extracted. Flint Hills refinery stated that costs of injecting the remaining heavy crude back into the pipeline results in FH paying a "quality banks differential" (i.e. tariff on re-injecting low quality crude) that varies yearly. I have not been able to reach anyone at PSI to inquire about its relationship with the TAPS owners but presumably PSI has the same injection costs as Flint Hills.
However, Alaska state politicians are still divided on whether price gouging is occurring. A bill (SB-28) introduced on the Senate floor on March 13, 2012, charges that Alaska refineries markup crude prices to artificially increase the cost of gasoline (price gouging) regardless of the attorney general's report. The bill proposes stiff penalties for price gouging. Those senators in favor of the bill say the gasoline refineries form an oligopoly, i.e. no competition. Given the attorney general's report, the unconvinced senators, and the lack of specific information about PSI's added refining costs, I started to look at some numbers.
The national average price of heating fuel was 23 percent higher for the week ending March 12, 2012, than the same date in 2011. Recently (March 16) the national average for heating oil (not including Alaska) was $4.10/gal while a local retailer in Fairbanks quoted $4.44/gal, a difference of 7 percent. That was not as large as I had expected, so I called a home heating oil company in Seattle, $4.69/gal. No kidding, on the same day Seattle was $0.25, or 5 percent, higher than Fairbanks. Clearly one phone call does not discredit the price gouging argument, but it did make me look elsewhere for answers.
Let's forget about Alaska for a minute and focus on the global picture. Fuel prices are high everywhere. Drilling and output are sufficient to meet current demands. Reserves are flush. Global demand for fuel is down due to the recession, period. However, trading of petroleum futures contracts has artificially increased the cost of fuel. Basically this group of traders bets on the future price of oil (based on news and often rumor) which in turn causes an asset bubble. The U.S. Congress has made no move to regulate futures markets. Petroleum is artificially priced far above its real value and makes the roughly 10 percent more for fuel we often pay in Alaska marginal in the greater scheme of things.
My look into heating fuel prices has shown that the global petroleum market is weighing on Alaskans more than the difference we pay to our refineries. Our federal representatives need to address this issue instead of pointing fingers at the other party. At the state level, it remains to be seen if SB-28 will pass but the argument that price gouging is occurring looks weak given the previous examinations by the attorney general. Bills are being considered that may alleviate some of the costs of heating our homes. The Energy Voucher Plan (SB-203) proposes giving Alaskan households either 250 gallons of heating oil, an equivalent amount of natural gas, or the equivalent of 1,500 kilowatt hours of electricity from the $3.7-billion state surplus. Additionally, the house has introduced a controversial bill (HB-9) that would make way for a natural gas line to feed Alaska's rail belt with a $7.5-billion price tag. However, the idea of a natural gas pipeline from the North Slope has been on the table for over 40 years and seems more a grandstand from which to be cheered by constituents. Another senate bill (SB-215) promotes a natural gas line to Fairbanks from Anchorage's existing infrastructure at a more feasible $1 billion. Then there is retrofitting your home for natural gas heating in place of heating oil. The effects of a favorable outcome on the natural gas bills would not be felt for years but, if passed, the Energy Voucher Plan will provide some near term relief. But what if natural gas becomes the new doll for futures traders?
Given that there are no solid, long-term solutions coming our way on the state or federal levels, there are things you can do on your own to improve the efficiency of your home. If you have not already had an energy audit done on your home you can contact the Alaska Housing Finance Corporation (AHFC) to learn more about the rebate program. If funding is available they can save you thousands on energy upgrades and future bills. The University of Alaska, Fairbanks, Cooperative Extension Service and Alaska Building Science Network (ABSN) also has excellent resources for retrofitting poorly insulated houses, upgrades, and the latest technology in new home construction. Of course, if you haven't caulked your windows, insulated crawl spaces, gotten rid of old windows, or contacted your federal representative, it might be time to take some simple steps, as sadly it seems like the price to heat your home will never be the same again.
Mike Knoche owns and operates Straight Ahead Construction, LLC. He has a Master's degree from the University of Alaska, Fairbanks and is a guide and naturalist for ExploreDreamDiscover Tours. Mike became interested in petroleum issues as he saw the Interior community struggling to pay for basic needs like home heating.
The preceding commentary was first published at the author's blog, Interior Builders, and is republished here with permission.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.