Gas goes up,
stays up

In a familiar pattern, Hawaii
gas prices rise when the price
of crude rises, but don't fall
when crude does

Gas prices are high, and two experts say there's nothing that can fundamentally fix that.

The average consumer price for a gallon of regular gasoline on Oahu hit a record yesterday of $2.017, up more than 4 cents a gallon from $1.976 a month ago, according to AAA. On Maui, the average Wailuku price was $2.374, also a record.

Gasoline dealers are paying higher wholesale prices for their gasoline. In the past week and a half, Chevron increased the price that it sells gasoline to one Oahu dealer three times, for a total increase of 6 cents a gallon, as of Wednesday. On Maui, the county gas tax rose 5 cents in July.

The national average price for gasoline has risen even faster than in Hawaii in recent weeks, hitting a record $1.735 yesterday, and many California cities have higher gas prices than Honolulu. The underlying cost of crude oil has increased, though it remains below the per-barrel prices seen in the weeks leading up to the war in Iraq.

What's interesting is Hawaii gas prices failed to drop from record territory after the start of war, when crude prices and national prices fell. "I've been scratching my head over this," said David Hackett, president of Stillwater Associates, a California consulting firm hired to study Hawaii's gas market.

Hawaii's two refiners, ChevronTexaco Corp. and Tesoro Petroleum Corp., are reluctant to drop their wholesale gas prices when crude prices drop, because the refiners don't know when crude prices will rise, said Fereidun Fesharaki, a petroleum expert at the East-West Center. The refiners don't gain market share by lowering prices, he said.

As such, prices here have been at record levels all summer.

More to the point, it appears that no one has a be-all, end-all remedy for Hawaii's gas prices. A gas price cap passed last year by Democrats in the state Legislature and signed by Gov. Ben Cayetano would cap Oahu prices today at $2.42 a gallon if it were in effect, according to calculations by Chevron. Regardless of the intent behind the law, or how it works, it's not much help at the moment.

Fesharaki said Hawaii's gas prices can never be on par with mainland prices, because the small, isolated nature of the market is restrictive to having more players. Plus, land costs are high, Hackett said. "It would never be similar to the mainland. That's against the order of God. It cannot be," Fesharaki said. "I know that the answer I give doesn't make anybody happy."

The price of a barrel of Indonesian minas, a type of oil often used to make Hawaii gasoline, was roughly $33 a barrel before the start of war, then promptly dropped below $28 a barrel and hit bottom at $25.20 in early May, according to Bloomberg News data. That's a decrease of about 23.6 percent.

Hawaii gas prices, which hit record territory in March, did not fall when crude oil prices and national gas prices fell. For much of the summer, the average Oahu gas price hovered just below $2 a gallon, though prices vary slightly at each gas station.

It's the same pattern Honolulu has seen for at least a decade, in which gas prices are quick to rise, but slow to fall, unlike the dips and spikes in other cities. A state lawsuit alleged that collusion among the oil companies was to blame for Hawaii's gas market, but the state settled the suit for $35 million, and concluded that the market is simply not competitive.

Companies do have the ability to import gas into Hawaii -- as Aloha Petroleum Ltd. has done -- but if the refiners can match the price of imported gas, a wholesaler will buy from the refiner, Fesharaki said. In other words, if importing isn't cheaper than the refineries, it won't help gas prices here, he said. Transportation costs are the roadblock, he said.

Fesharaki and Hackett have suggestions for easing the price of gasoline here, but both say there is simply no way to match mainland prices. They oppose a price cap. Preliminary findings from the Stillwater study said that gas price caps have created shortages in other places.

Fesharaki said the pending gas cap may be part of the explanation behind the current high gas prices in Hawaii. Because the "capped" price is so high, it has taken some of the pressure off those who sell gasoline, even though the law does not take effect until next year, he said.

In creating the price cap, the Hawaii Legislature adopted a formula that would tie Hawaii gas prices to weekly West Coast prices. Right now, California prices are going through the roof. San Francisco is at $2.215 a gallon, Los Angeles is $2.137 and Sacramento is $2.123, according to AAA.

Sen. Ron Menor, a proponent of the gas cap, said yesterday that he is open to fixing the cap, but without an alternative, the Legislature should continue to support it. The law is scheduled to take effect in July 2004.

"Critics of the price cap law have an obligation to come up with alternatives to the price cap law," said Menor (D, Mililani). "Unless alternatives can be developed, I think that the price cap law should be given an opportunity to work." If the Legislature needs to fine tune the law, it can, Menor added.

Fesharaki's suggestion is that the state of Hawaii publicize where residents can buy cheap gas. At Costco in Waipio on Oahu, the price this summer has been $1.87 a gallon. More people here buy premium gasoline, at a higher cost, when they don't need to, Hackett said.

Menor said publicizing low prices does not fix the fundamental lack of wholesale competition. "The alternatives need to provide effective and meaningful relief to consumers," he said.

Hackett said it's important to reduce barriers to the supply of gasoline. However, Hawaii gas prices will remain higher than mainland prices because of the lack of competition on the wholesale level, Hackett said. "At the end of the day, that's probably the case," he said.

Albert Chee, spokesman for Chevron in Hawaii, said there are barriers to retail competition as well, such as a pending rent cap for gasoline dealers and restrictions on the location of company-operated gas stations. Those regulations "indirectly" serve as a disincentive for other companies to enter the market, Chee said.

When asked if ending these laws would lead to more competition on the retail level, Chee said he couldn't say what would happen, but it would remove a disincentive to build gas stations.

Chee disagreed with the notion that there's a lack of wholesale competition, because gas can be imported here. Chee said oil companies are selling at prices that people are willing to pay. "I often think that at the end of the day, the consumer or the buyer at the wholesale level, has got the power," he said, meaning buyers have choices. Regulation tends to limit choice, Chee said, citing a recent report by the Federal Trade Commission on Hawaii's gas market.

To Fesharaki, the best thing the Legislature can do to help gas prices is do nothing.

"You can have 100 gas caps. It makes no difference. You can't go against economic logic," he said.

In California, Lt. Gov. Cruz Bustamante has backed a constitutional amendment to place gasoline under the oversight of the California Public Utilities Commission. Bustamante, the top Democrat running in the Oct. 7 recall election, said in a press conference that oil companies haven't properly explained why gas prices are so high.

A spokesman for a trade group of oil companies, the Western States Petroleum Association, said California prices were a function of demand outstripping supply.

In Hawaii, the state Public Utilities Commission testified against similar action last year, and so did the state Division of Consumer Advocacy. Gregg Kinkley, executive director of the division, said last year that the PUC is meant to work with monopolies, and Hawaii's gas market is not a monopoly.

Fesharaki's view? "You can't change it. Stop fretting about it," he said.


E-mail to Business Editor


Text Site Directory:
[News] [Business] [Features] [Sports] [Editorial] [Do It Electric!]
[Classified Ads] [Search] [Subscribe] [Info] [Letter to Editor]
© 2003 Honolulu Star-Bulletin --