A dealers association director
says Hawaii refiners are making
'windfall profits'

By Rob Perez
Star-Bulletin

Despite steep drops in world oil prices the past several months, Hawaii motorists have seen little benefit at the gasoline pump, once again fueling claims of price gouging by the big oil companies.

While mainland pump prices have declined 10 percent on average since September, according to one national survey, Hawaii prices -- already among the highest in the nation -- have barely budged.

If prices had fallen 10 percent here, regular self-serve unleaded typically would sell for $1.45-$1.50 a gallon. Instead, it costs about $1.59 to $1.62 a gallon at most Oahu stations.

"The oil companies here have not been as quick to lower the prices in this market as the companies have been on the mainland," said Bill Green, owner of a Kahala service station.

Frank Young, a director of the Hawaii Automotive Repair and Gasoline Dealers Association, said the state's two refineries are benefiting from the drop in crude prices without passing on corresponding savings to dealers.

"They're getting windfall profits," Young said, echoing a charge that for years has been regularly voiced in Hawaii.

Stafford Kiguchi, spokesman for BHP Hawaii Inc., which runs the state's largest refinery, disputed the allegation, saying prices are driven largely by competition.

Mike Neely, pricing manager for Chevron Products Co., which operates Hawaii's other refinery, agreed. "The market really sets the price," he said.

Kiguchi also noted that Hawaii and the mainland are two separate markets, making comparisons of pricing trends inaccurate.

Hawaii, for instance, has a much more stable inventory of gasoline and thus doesn't have the wide price swings typical of many mainland areas, Kiguchi and Neely said.

Also, Hawaii has longer lag times between when crude is purchased by the refineries and pumped by consumers, Kiguchi said.

Gas pumped today in Hawaii was made from crude purchased as much as two to three months ago, meaning more costly product still can be flowing through the system, he said.

On the mainland, the lag time generally is shorter because many refineries are connected to their crude sources by pipeline, a quicker system than shipping oil by tanker, he said.

Asked if the longer lag times mean Hawaii consumers can expect pump prices to drop in the near future, as less expensive crude is processed, Kiguchi declined to speculate.

Markets elsewhere, however, already have seen lower prices.

Since October, the price of crude internationally has dropped more than 20 percent, experts say, mainly because of lower demand due to the Asian economic crisis and mild winters in much of the United States and Europe. By some accounts, the decline has been as much as 30 percent.

U.S. motorists -- perhaps with the exception of those in Hawaii -- clearly have benefited from the trend.

The national average for regular unleaded at self-serve pumps fell from $1.288 in September to $1.159 in late January -- a 10 percent drop and the lowest level in two years, according to the American Automobile Association.

Yet Hawaii's average remained unchanged in that same period, staying at $1.659, AAA said.

While AAA's Hawaii numbers are considered too high by many local dealers, they acknowledge that prices barely have changed since October, dropping at most a few pennies. That has widened the price gap -- historically about 30 cents a gallon -- between here and the mainland, dealers say.

Green, who runs a Shell station, said he has dropped his retail price only about 2 cents the past three months, reflecting a roughly 4 cent drop in the wholesale price he pays. His regular unleaded price Monday was $1.63 a gallon.

Green said he passed on only half the wholesale savings to partly make up for profit margins that shrunk to zero the past two years.

"We got squeezed to the point where we weren't making any money," he said.

BHP's Kiguchi said crude prices that BHP pays have fallen an average of about $5 a barrel the past couple of months -- or about 25 percent.

But looking at price changes over just a few months can provide inaccurate impressions, he said. Kiguchi noted, for instance, that crude prices jumped $4 a barrel from September to mid-October, yet the refinery didn't raise wholesale prices and dealers didn't raise pump prices.

"It doesn't paint an accurate overall picture to only focus on a narrow window of time," he said. Over an extended period, Kiguchi added, "the market forces do an efficient job of determining prices."

On a global basis, most analysts say an oversupply of crude should keep gasoline prices from rising for now.

But if war breaks out in Iraq, disrupting oil supplies in the Middle East, that could drive prices higher, they say.

Because of persistent complaints about Hawaii's high gasoline prices, the state attorney general's office has investigated the issue in the past.

In a 1990 report, it concluded that the high prices likely were due to a lack of competition.

Several years later, the office said it found no evidence that oil companies were making excessive profits here.