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Why gas prices are so high in the Last Frontier

(KCRG)
Published: Dec. 30, 2018 at 2:44 PM AKST
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With global crude oil prices falling, one Alaskan working on the North Slope for nearly 40 years is questioning why gas prices in Alaska are still so much higher than the U.S. average.

According to GasBuddy, an online service monitoring national gas prices, the average price of gasoline in the U.S. is around $2.25 per gallon. Alaska on the other hand comes in at just over $3.00 per gallon.

"I have been monitoring the local gas prices on the Kenai for 20-plus years, and it's a clear chronic problem that our only refinery drags its feet when it is time to drop gas prices," said Shawn Nelson, after working decades in the industry.

Nelson said gas prices are the talk of the town in the Kenai, where they remain high even though the Nikiski refinery is in their back yard. He said prices are quick to jump when global oil is hot, and slow to drop when it's cold, like it is now.

"It just seems that when it all starts going down everywhere and it's been down several months, Alaskan's still don't even see any of it," Nelson said. "But yet, they do get delivered this cheaper oil, and they're not passing along the buck in a timely manner."

Larry Persily, an oil and gas analyst, has written about the economics of oil and gas in Alaska for a long time. He said there are numerous explanations behind high prices at Alaskan pumps. But for starters, he said, Alaskans can't have their cake and eat it too.

"Alaskans live and breathe and die with oil prices," Persily said. "We want it high because we want the revenue for public services and construction spending, but we don’t want to pay at the pump. You can’t have both.”

Persily said the refinery in Nikiski is small by U.S. standards, making it less cost-effective to refine oil than it is for bigger refineries on the Gulf Coast and middle America.

"All those things work against us," Persily said. "We're always going to be more expensive."

Plus, Persily said, the Nikiski refinery mostly processes Alaska North Slope crude, which as of Dec. 27, 2018 sold at $54.19 per barrel, as compared to West Texas Intermediate's same-day high of $44.61, according to the Alaska Department of Revenue.

"North Slope oil is the most expensive oil in North America right now," Persily said. "It’s not to say people like it, it’s not to say I’m happy about it like anyone else, but that’s just the economic reality. It’s always going to be more expensive.”

So Nikiski refines the most expensive oil in North America, and it can't refine enough oil to supply all of Alaska with affordable gasoline. The difference is made up with gasoline barged up north from West Coast refineries.

“So many factors, all of which make sense," Persily said. "But the factors don’t change the resentment and frustration among Alaskans who say, ‘How come I have to pay so much? How come it’s not dropping more?’"

Another reason many states in the Lower 48 are experiencing lower gas prices stems from the cheap cost of Canadian Crude -- $27.63 as of Dec. 28.

Persily said Canada is producing more oil than they can sell, so it's offloaded to U.S. markets, lowering the price at the pump in places like Michigan -- currently at $2.02 on average, according to GasBuddy.

“They’re doing 4 million barrels a day in Western Canada, we’re doing half a million," Persily said. "So all of that lower-cost, cheap Canadian oil ends up being cheap U.S. gasoline.”

There are plenty of other factors at play for why gas prices remain steadily high here in Alaska, according to Persily. But at the end of the day, it's a matter of supply-and-demand economics -- Alaska supply is low while demand remains relatively high, driving up the overall price of gasoline.

"It doesn't change the emotions that Alaskans have had for decades," Persily said. "They resent paying so much at the pump, but I don't see it changing."

A spokesperson from the Marathon Petroleum Corporation responded to Shawn Nelson's concerns via an emailed statement:

"There is a wide variety of factors that go into the price of gasoline at the pump. In addition to the price of crude oil, there are state, federal and local taxes; refining costs; the costs to transport crude oil and refined products to their destinations via pipeline, trucks, marine vessels or trains; and competition among the many retailers trying to attract customers."

"Various combinations of these factors determine gasoline prices in different regions of the country."