And you thought you were still paying $$ for gas?

[garyhaupt]

Bush Alaska locked into high gas prices for fuel delivered last summer and fall.


BETHEL -- While urban Alaskans are enjoying a gradual drop in fuel costs, those in rural Alaska continue to pay stinging-high prices at the pump.

In Bethel, for instance, the cheapest gas is $6.67 a gallon at Nicholson’s Auto. In Barrow, unleaded gas is $7 a gallon at Eskimos Inc., the lone gas retailer. In remote villages, gas is even more dear. Filling up an SUV? That’s a quick $125 swipe on your debit card.

Meanwhile, prices have dropped below $3 a gallon in Anchorage and aren’t much higher in Fairbanks. The average price nationwide as of Monday was $2.30 a gallon, down $1.03 from a year earlier, according to the U.S. Energy Information Administration.

Bush prices for a winter’s worth of fuel were set months ago, before the price of crude oil began its steep decline. Rates won’t change until new shipments arrive after breakup in 2015.

Nicholson’s buys its fuel from Delta Western and won’t be changing the pump price until late spring or early summer, said owner Debbie Nicholson.

“They set their prices when the last barge comes in,” she said of Delta Western.

Petroleum suppliers must get fuel to rural hubs and villages during a four-month window between breakup and freezeup, a process that Crowley Maritime Corp. -- the major supplier and Delta Western’s biggest competitor -- calls “one of the most complicated fuel delivery systems in the nation.”

Crowley transports fuel to more than 280 Alaska communities along the coast and up and down the Yukon and Kuskokwim rivers, including Nome and Kotzebue, Bethel and Barrow, Ketchikan and along the Aleutian chain.

“The last of the fuel gets laid in to the location in September, October, depending on where it is,” said Sean Thomas, Western Alaska vice president for a Crowley entity, CPD Alaska LLC. “That product is essentially, physically, locked in by ice until the next spring and summer season, when fuel is resupplied.”

The price gets locked in too. Crowley bought fuel now being sold in rural Alaska between May and August, when refinery prices were about double what they are now, Thomas said. Those wholesale market prices of fuel account for about 70 percent of the retail price, with transportation and storage accounting for the rest. Refineries sell at a daily market price, a three-day average price, or a monthly average. Crowley favors the latter, to smooth out spikes and dips, but some refineries don’t offer that and some of its customers prefer the other pricing structures.

The lower prices at refineries may benefit Western Alaska next spring and summer. Crowley now is working with customers in the petroleum futures markets to set prices. Those are complex financial arrangements and require customers to commit to buying fuel now, but taking delivery six or so months later, Thomas said. The futures markets have some risk -- prices could drop even lower -- but some financial mechanisms allow customers to set an upper cap, and still get the benefit if prices fall, he said. The company is educating customers about the process.

Crowley mainly sells its fuel to big customers including government agencies, Alaska Native corporations, school districts and private companies and also operates retail gas stations in Bethel and Nome.

A remote location, a small population and high transportation and storage costs combine to make fuel expensive, said state Rep. Bob Herron, D-Bethel.
"Most places don't have a months-long supply," he said. Sellers not in ice-bound communities can simply get another shipment. "It's the link from the supply line that penalizes us."

Herron used to be in the propane business and would have to cover the cost of the gas and transportation upfront, then include in the pricing the cost of sending empty propane tanks back out. That's expensive overhead.

In Bush communities, residents' electric bills are subsidized through a state program but there aren't general subsidies for gas at the pump or heating fuel. In Norway, however, fuel prices are the same throughout the country, Herron said he learned on a trip there. He asked about it and was told the government subsidized gasoline to even out the price.

"They said they don't want people to move to the cheapest fuel prices," Herron said.

In rural Alaska, high energy costs strain the economy, absorbing big chunks of household budgets as well as those of business and government. The Institute of Social and Economic Research at the University of Alaska Anchorage in a 2013 report to the Legislature said lowering delivery costs would be among the ways to lower fuel costs.

Crowley is working on that, Thomas said. Its biggest barges -- the most fuel efficient -- are too big for the Kuskokwim River. It’s working on a new vessel designed for the Kuskokwim that will be more maneuverable and pushed from behind by a tug. With that system, Crowley won’t need to operate a separate pilot boat, saving transportation dollars, Thomas said.

There’s no cost-effective way to deliver fuel to the Bush year-round, he said. Airplanes can’t carry enough to justify the fuel they would burn. Ocean tankers and specialized fuel barges are far more efficient, even when the fuel must be reloaded onto progressively smaller vessels, he said.

The expense of storing fuel at tank farms over winter isn’t going away, either. In Bethel, the last barge of fall tops off the tanks, leaving the community with almost 13 million gallons of fuel to use over the next eight or so months.

“Running out cannot be an option,” Thomas said.

While many residents accept high fuel prices as part of life in Bush Alaska, seeing prices drop elsewhere is frustrating.

“Consumers have to suffer all the time in rural Alaska,” said Zack Brink, executive director of the Bethel tribe, Orutsararmiut Native Council.

Thomas noted “it works both ways” and sometimes rural Alaska gets the benefit. In 2009 when crude oil prices doubled from $70 to $140 a barrel, rural fuel prices already were set at the lower rates, he said.

“The price at the tank farms or at the pumps that Crowley owns and operates didn’t change. It didn’t go up and it didn’t go down. Just like now,” Thomas said. “The cost is the cost until we resupply again in the spring.”


http://www.adn.com/article/20150101/bush-alaska-locked-high-gas-prices-fuel-delivered-last-summer-and-fall


Gary Haupt

[96Bounder30E]

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