Business/Economy

Curious Alaska: Why are Alaska gas prices high compared to other states?

gas, gas price, gas prices, gasoline

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Question: Why are the prices for gasoline and diesel fuel in Alaska so much more expensive here than in other states?

Gas prices in Alaska have surged to near-record highs in recent weeks, jumping close to $1 a gallon in the last month.

Experts blame factors outside the state, though most of the gasoline consumed on the state’s road system is made in Alaska.

Alaska last week experienced the nation’s highest weekly increase in regular gasoline prices, a 38-cent jump, the American Automobile Association reported on Thursday.

That helped push Alaska average prices to $5.55 a gallon this week, 6 cents shy of the record set in June.

So what’s going on?

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First, the big picture. Gasoline prices have been high globally for many months, thanks to increasing demand as pandemic concerns ease. Also, sanctions on Russian oil related to the invasion of Ukraine in February have disrupted the world’s supply of crude oil, and the OPEC Plus alliance of oil producing nations recently agreed to cut crude oil output, two factors putting more pressure on crude oil prices.

Crude oil is the main source of gasoline and the key driver in gasoline prices. The price of crude oil in Alaska is tied to that global market, even though some of the crude oil used to make gasoline in Alaska comes from in-state oil fields.

But there’s another unique factor underway that has pushed Alaska’s prices well above the national average, which is hovering around $3.90 a gallon, experts say.

Alaska gasoline prices are tied to those in the West Coast region, observers say.

The West Coast has experienced a sudden “pop” in gasoline prices stemming from refinery issues there, said Matt Smith, lead oil analyst in the Americas with Kpler, an international firm that tracks markets for gasoline, oil and other commodities.

Specifically, refineries in California and Washington have been undergoing maintenance and shutdowns, according to Oil Price Information Service, a price-reporting agency.

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The issues at the refineries have sharply reduced gasoline supply in the region to the lowest level since 2012, Smith said in an email Friday.

But Alaska’s counterparts in the western region, over a month’s time, have seen bigger price increases than Alaska, Smith said.

West Coast prices are up by more than $1 a gallon over a month’s period, he said. That was 25 cents more than in Alaska during that same period, he said.

Smith said there should be some relief for prices in Alaska and other Western states in the coming weeks, as the refinery issues ease.

With Alaska gas prices surging, two Democratic state senators have asked Alaska’s attorney general, Treg Taylor, to investigate pricing in the state and whether in-state refinery margins are too high or price gouging is occurring. The Department of Law “is aware of the sharp increases in gas prices in the state and will be reaching out” to Sens. Bill Wielechowski and Scott Kawasaki to address their concerns, a spokeswoman with the agency said in an email.

After an earlier gas spike in 2008, the nonpartisan Legislative Research Services Division found that the state’s two gasoline refining companies at the time made unusually high profit margins compared to the Lower 48.

Back then, the state attorney general’s office said it found that unique market conditions in Alaskans had kept prices elevated in the state compared to the rest of the U.S. Alaska is a small market with few companies, small volumes, and limited competition outside Alaska, the report said. Also, price changes in Alaska lag the rest of the nation. And unprecedented volatility in crude oil prices was another factor — a situation repeating itself today.

The state investigation found no evidence of illegal activity involving pricing, such as price fixing or collusion among gas stations, fuel distributors and refiners. The office at the time said Alaska has no price gouging law that limits the amount of profit a business can make, and that hasn’t changed.

Today, Marathon Petroleum is the only company refining gasoline in Alaska, at its refinery in Nikiski.

“The largest factor (in gasoline pricing) is the price refiners pay for crude oil, which is a globally traded commodity,” said Jamal Kheiry, a spokesman with Marathon, in an email.

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Other factors include refinery and transportation costs and regional gasoline supply, he said. Taxes are also a relatively small part of the equation, on average. State taxes in Alaska are the lowest in the U.S.

Marathon Petroleum did not reply to emailed requests for comment about the concerns raised by Wielechowski and Kawasaki.

Big Mike's Tesoro, Mike Speer

Mike Speer, with Big Mike’s Service Tesoro, an independently owned gas station in South Anchorage, said the West Coast refinery issues are the biggest short-term factor for the high prices in Alaska. The globally high cost of crude oil is a longer-term concern, he said.

Speer said last week that the price increase is tough on drivers and gas stations, too. He said he had been forced to boost gasoline prices by close to 80 cents in two weeks, to $5.59 a gallon last week.

He said on Tuesday that the price from the supplier is starting to drop, so it might fall by a dime or more this week at the pump.

Speer said price volatility during the pandemic has forced prices he pays for gasoline up by 20 cents or more in a single day. That’s far more than the single-cent fluctuations that were more common before the market went haywire, he said.

Profit margins fall for the station when gas prices rise, he said, since credit card fees take a bigger percentage from profits. Those and other costs mean Speer is giving away gas at these high prices when someone makes a very small purchase, such as a gallon’s worth of gas for yardwork.

“One thing people don’t realize is the higher the gas price, the less I make,” Speer said. “We’d rather see it lower.”

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“We’ll be happy as heck when prices go down,” he said.

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Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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