Isle drivers
pay the price
for premium

A fourth of the gas bought here
is premium. But unless you drive
a Ferrari or other high-performance car,
you probably don't need it, experts say.

By Rob Perez
Star-Bulletin

Hawaii motorists love their premium gasoline.

Only New Jersey drivers purchased more of it last year on a percentage basis than local residents.

But one automotive expert says Hawaii's attraction to the higher-grade fuel indicates many people are paying more than they have to - and getting no measurable benefit in return.

Unless motorists drive high-performance cars, such as Porsches or Ferraris, that are designed to run on high-octane gas, using premium usually is unnecessary and won't boost engine performance, according to David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan.

The numbers show that Hawaii has one of the top markets in the country for premium, considered the most profitable grade of gas for oil companies.

Last year, 27 percent of the gas consumed in the islands was premium, the second-highest percentage among the 50 states, according to U.S. Department of Energy statistics.

New Jersey topped the list at 27.7 percent. The national average was 16.6 percent.

Asked what Hawaii's high number suggests, Cole, an engineer, said, "People are wasting money."

For motorists who have cars that don't need premium, switching to regular can save roughly 15 cents to more than 20 cents a gallon. But even at the cheaper grade, Hawaii still has the highest pump prices in the country.

The state recently sued the major oil companies here, claiming they have conspired to keep prices artificially high for a decade. The companies deny the charge.

While the lawsuit is expected to drag on for years, with no guarantee of bringing prices down, consumer advocates say people can best help themselves by becoming more educated and price-conscious shoppers.

Buy the right gas

The first thing to do, advocates say, is to buy the appropriate gas.

Such advice would be particularly pertinent for Walter, a local businessman who wouldn't give his last name as he filled his mid-size sedan recently with $1.68-a-gallon premium at a Kakaako station. Regular at the same pump bay was $1.48 a gallon.

Although Walter's sedan wasn't designed to run on high-grade gasoline, he said he buys the more expensive fuel out of habit - an answer similar to what several other customers gave. For years, Walter said, he has purchased premium for all his vehicles.

"When you buy a car, they never tell you what to use," he said.

Industry pitches probably account for part of Hawaii's high rate of premium purchases, persuading people like Walter to buy 92-octane fuel even when they don't need to, some analysts say.

"The oil companies were really very, very clever in terms of how they marketed," said Nancy Yamaguchi, a Seattle-based international oil expert who served on the faculty at the East-West Center from 1982 to 1993.

Nathan Hokama, a spokesman for Tesoro Hawaii Corp., which runs one of Oahu's two refineries, said he was unsure why the state has a high rate of premium consumption.

He said about 60 percent of the gas Tesoro sells is regular, with the remaining split between premium and midgrade.

Car manufacturers recommend what grade of gas to use for their vehicles, and consumers should refer to that when buying fuel, Hokama said.

Cole said older cars plagued with persistent engine knocking - marked by a pronounced ticking sound - might benefit from higher-grade gasoline, even if the manufacturer's recommendation is for regular. Premium can reduce knocking in older engines.

But if there isn't heavy knocking, which could indicate an engine problem that needs fixing, Cole said regular gas usually is sufficient.

Pick cheapest station

Consumers also can send a strong message to the industry by patronizing the lowest-priced stations, some former and current industry officials and dealers say.

Many in the industry believe Hawaii motorists generally place convenience and brand loyalty above price when deciding where to purchase gas. Not even savings of 5 cents to 10 cents a gallon will entice some to buy elsewhere.

"Consumers should put the oil companies on notice that they are going to shop price," said Frank Young, a Chevron dealer who, like the state, accuses the companies of overcharging.

Young is doing his part to try to bring prices down. He lowered his regular unleaded price in September to $1.479 - several cents below what most other stations were charging - even though his wholesale price hadn't changed. The price drop was triggered in part by a reduction at a nearby competitor, Lex Brodie's Tire Co. That station recently was selling regular at $1.449 a gallon.

Since the price adjustments, Young said his business has more than doubled, indicating people are willing to change buying habits to save money.

A Lex Brodie executive said business there has jumped more than 30 percent.

Young and others believe that if enough people switch from the higher-priced stations, suppliers to those stations eventually will be forced to lower wholesale prices to allow the dealers to compete.

A down side?

But some analysts say widespread price wars would only harm dealers, shrinking retail margins and possibly driving less-efficient operations out of business. With fewer dealer-operated stations, the company-operated ones will sell more gasoline, bolstering oil company profits, and retail prices eventually will head back up, the analysts say.

"You put zero pressure on the high wholesale prices," said Tim Hamilton, a mainland petroleum consultant who has analyzed the Hawaii market.

"Everybody would make more money, including (surviving) retailers," said Hugh Ogburn, a retired industry executive. "The wholesalers wouldn't have to do anything. They wouldn't have to change their prices."

What about performance?

Even if price-sensitive shoppers could help bring prices down, some consumers say they are reluctant to switch to less expensive brands, fearing a drop in engine performance.

But Cole suggested such fears are unwarranted.

Any gas sold domestically must meet minimum federal standards, ensuring the energy content - the critical characteristic - is essentially the same no matter what the brand, he said.

Most of the gas sold in Hawaii (with the exception of Aloha Petroleum fuel, which is imported) comes from Oahu's two refineries. Individual companies add their own additives, but that usually won't affect engine performance, Cole said.

"Most people are not going to see any difference from brand to brand," he said.

Hokama said he had no information to dispute that. A mainland spokesman for Chevron Corp., Hawaii's gasoline market leader, didn't return a phone call seeking comment.

Despite uniformity among the various brands, oil companies spend big bucks each year trying to distinguish their products and build brand awareness.

If customers buy premium, companies are even more pleased, analysts say.

Said Ogburn: "You make more money on premium. Always."

Premium profits Hawaii has one of the top markets in the country for premium gasoline, the most profitable grade of gas for oil companies. Here are the top five markets among the 50 states last year: State -- % of overall gas sales New Jersey -- 27.7 Hawaii -- 27.1 New York -- 25.2 Florida -- 22.8 Maryland -- 22.7 Source: U.S. Dept. of Energy