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Gas prices: a complicated mix - Many factors in what Island stations charge to fill up
By Mary L. Grady
Just in time for the Fourth of July holiday weekend, gas prices went up another three cents. Did anyone notice?
With prices already nearly $2.50 a gallon last week on the Island, the three-cent tax imposed by the state to cover state transportation needs and the first phase of a total 9.5-cent gas tax increase hardly rated a second glance from drivers.
What appears to be certain is that those who independently own or operate Island service stations have little, if any, say on the prices posted at their pumps beyond a dime or two a gallon.
For many drivers, the price does not matter. They like the convenience, service and the people who work at the stations in their neighborhood.
But what is it that drives price increases? Why are gas prices different at service stations that are just across the street from each other and are even the same brand?
Who is responsible for the steep increase in prices?
It is not easy to figure out. Complex ownership and supply arrangements, along with uncertain raw product costs, will keep gas prices changeable and above $2 a gallon for the foreseeable future, energy analysts say.
This is not the first time that prices have increased the ire of drivers. Huge run ups in United States gasoline prices have occurred before. Many drivers and economists felt the world was coming to an end when gas reached the $1-a-gallon threshold in the early 1980s.
To put this latest round of sticker shock into perspective, gas prices in real terms (adjusted for inflation) have been higher before -- the national average for gasoline in real terms reached $2.81 in 1981.
Retail gas prices are made up of four major parts: Raw product or crude oil, refining costs, distribution and marketing expenses, and of course, taxes.
Raw product or crude oil for gasoline consumed used in the Western U.S. is either imported from the Middle East, Canada or Mexico. Crude oil supplies make up nearly half of the retail price.
The second piece is the cost of refining the crude sludge-like goo transforming it into different retail grades of gasoline. According to the United States Department of Energy, refining costs add about one-fifth or more to the retail price.
The third major part of the price is distribution and marketing -- moving the gasoline products through pipelines and trucks -- and the margin added by the service stations. Those costs combined add another 5 to 10 percent to the price. Within that amount, between 10 and 20 cents per gallon are added by the service stations.
Finally sales and other taxes add another one-fifth or more to the price. With the new tax implemented last week, Washington state drivers pay the state 31 cents for every gallon, one of the highest amounts in the nation according to the U.S. Dept. of Energy.
If consumers are frustrated by the lack of control over the price and availability of gas, it is even more frustrating for those who sell it to them. The prices differ for individual stations based on its ownership and agreements with distributors.
For the Ulrich family who have operated the Shell on Sunset Highway since 1965, energy giant Shell holds nearly all the cards.
The Ulrich brothers, Marty Jr. and Dave, whose station also has a mechanic on duty most hours, are an independent operation. There are fewer than 300 dealers like the Ulrich family left in Washington state, Dave Ulrich said.
Shell, similar to other oil companies, uses a computer system that monitors tank levels by satellite to decide when and how much fuel to deliver. Prices to the dealer are set using corporate pricing models that use information from consumer surveys and demographic data, a practice often referred to as zone pricing. Zone pricing has been taken to court in some states, but the Federal Trade Commission has taken a position that while zone pricing hurts some, other benefit.
A least some stations on the Island are well aware of the prices offered by the others.
Brad Connell of the Shell Station next to the north-end QFC said that he always checks the prices charged by other stations. But when asked to explain how the gas brought in by a tanker truck is priced, he defers instead to his boss.
He is busy. The tiny lot is full of cars that need to be moved to juggle space. Within the space of five minutes, two people stop for directions, one to an obscure Island location that he rattles off without hesitation. He knows the next two drivers who pull up to the pumps. He points to the new trap/heads for the underground tanks.
``We had to buy them ourselves,'' he said. ``They cost $1,200.''
The talk about prices goes on all day from customers, they all agreed.
```Why are your prices so high?' they always ask,'' said Dave Ulrich.
The Sunset Shell used to sell 150,000 to 160,000 gallons of gasoline each month. Now it sell less than 70,000. The brothers attribute much of that decline to the higher prices.
The people who work at the Chevron station on Sunset Highway are corporate employees and are told not to comment. They are instructed to refer questions to a 1-800-CHEVRON number.
Government and industry economists say that gas prices will settle down somewhat after the summer driving season. But uncertainty with foreign sources for crude along with consumers, who have yet to change the amount of driving they do, will help keep prices higher.
Gasoline also competes with other uses of oil. According to electricity marketers such as the Bonneville Power Administration, more oil may be needed to be substituted for hydroelectric power this winter in California -- shifting oil away from retail gasoline products.
Even if there was an unlimited supply of crude oil, there would not be enough refining capability to process it.
In the Pacific Northwest, a portion of the refining capacity has been sold to out-of-state users, according to a home heating oil group. New refining capability is extremely expensive and difficult to permit they explain on their Web site.
Is it worth it to shop around to find gas that is a dime cheaper or pay more for convenience? For many, price is not an issue.
Just a few minutes at an Island service station shows why.
On an unseasonable hot afternoon last month, an older Island couple, who are longtime customers, walked into the Sunset Shell station. Their car, a late model Jaguar, parked a few blocks away at McDonalds, could not be coaxed out of park. They found station employee Willie Kleffner on his lunch break. Leaving the couple in the cooler shade at the station, Kleffner walked over to McDonalds and brought the car back. He wouldn't take any payment for the favor.
The woman went over to Oh Chocolate! and bought him a box of treats.
``She knows I like chocolate,'' Kleffner said sheepishly to hoots from his co-workers. ``I buy it from her grandsons for their school.''
Sidebar: Gas sense: tips on saving at the pump
Gasoline prices are unlikely to fall much before the summer driving season ends, but simple, common-sense ideas can give consumers some control over what they spend on fuel. They include shopping for gas using on-line cheap-gas-finder services, cleaning out the trunk and keeping tires properly inflated to help save money. It may seem that each change will only save a few cents a gallon, but over time, such savings can add up to significant amounts.
First, however, consumers are advised to take a deep breath and get a little perspective.
In inflation-adjusted dollars, gas prices have been higher in the past, spiking to $2.80 per gallon in 1981.
Most cars and minivans average about 20 miles per gallon and are driven an average of 250 miles a week. If gasoline prices go to $3, consumers can expect to pay the equivalent of a couple more lattes each week -- about $20.
Putting in an order for a gas-sipping Prius may not make sense, especially since a lot of other drivers may be thinking the same way -- driving up both demand and the cost for less fuel-intensive cars. In addition, if you drive a gas guzzler, it will have a lower trade-in value.
It makes more sense to hang on to your car, drive it less, make sure it is working properly and buy cheaper gas when you see it.
As drivers already know, the price of regular unleaded in the metro Seattle area can vary about 25 cents or more a gallon. When you are out and about, be aware of gas prices. Gas most likely will cost less as you head south. If you are already there, going a little out of your way makes sense to save a quarter or more a gallon. But driving 25 extra miles to save a few bucks, doesn't.
Check traffic before you leave so you don't waste gas and time sitting in traffic.
Eliminate last winter's tire chains and extra pounds of unneeded gear from the trunk and take off the ski rack to eliminate drag.
Consider a credit card with gasoline rewards or rebates.
If you are already a member, warehouse stores such as Costco and large retailers such as Safeway, sell discounted fuel to their members, sometimes as much as a dime a gallon cheaper. But again, only if you are already there and already have the membership. Plan trips to shop and gas up accordingly.
Look for independent stations offering a cheaper price for buyers who pay with cash because they lose money on credit card transactions.
Keep your car in tune and your tires properly inflated. A poorly maintained vehicle can cost you up to 2 miles per gallon, according to the American Petroleum Institute. Check your car owner's manual to see if your car really needs to take premium grade fuel. Always use self-serve pumps to save a few cents.
Check your owners manual and see if you have a flexible-fuel car. Big auto-makers such as GM have already been selling vehicles that can run either on gasoline or gasoline-ethanol blends.
Slow down. Each 5 mph over 60, the EPA says, is like adding a dime to the cost of a gallon of gas. Rock steady on the gas.
Finally, instead of starting up that engine once again, think about sharing a ride, riding your bike or even walking that block or two to the store.