Higher fuel costs showing ripple effect in Hawai'i

By Sean Hao
Advertiser Staff Writer

It's difficult to predict what will happen to fuel prices in the future, but experts said not to expect relief anytime soon.

The price increase, fueled mainly by concerns about distant suppliers such as Venezuela, Nigeria and Iraq, isn't showing up only at the pump. It's trickling down through the economy to boost costs for everything from electricity to goods shipped to Hawai'i to services such as air travel.

Even under a best-case scenario, in which a war in Iraq ends quickly, it will take a while for U.S. oil inventories and prices to return to normal levels, said Doug MacIntyre, a senior oil-market analyst with the Energy Information Administration, which collects and analyzes data for the U.S. Department of Energy.

"I wouldn't expect to see a return to the low prices we saw last summer this year," MacIntyre said. "Even if it's a quick war, how quickly will Iraqi oil come back into the marketplace?"

Skating on thin ice is a common way to describe U.S. oil supplies, he said.

U.S. crude oil inventories remain at their lowest levels since October 1975, and imports are at their lowest weekly level since January 2000, MacIntyre said. High demand during the winter heating season also is affecting prices. Yesterday, crude oil futures hit a 29-month high at $36.96 a barrel on the New York Mercantile Exchange.

Also fueling concerns is a threatened strike in Nigeria — a large U.S. oil importer — and lower-than-normal imports resulting from a strike in Venezuela.

The higher cost of crude is a major reason why the average price of regular gas is up to $1.886, or about 8 cents higher than last month, according to AAA Auto Club.

Even though most of the crude oil used in Hawai'i comes from Alaska and Asia, a rise in crude oil prices results in higher costs for local refiners ChevronTexaco Corp. and Tesoro Hawaii, and ultimately higher prices at the pump.

Fuel costs also have led several industries to raise rates:

• Matson Navigation Co. will raise from 6 percent to 7.5 percent the fuel surcharge assessed on cargo shipments to Hawai'i starting March 3. Major rival CSX Lines also is considering raising its fuel surcharge.

• Several major airlines increased fares by $20 per roundtrip to compensate for higher fuel costs. But the hikes were abandoned after one major airline failed to follow suit.

• Both Hawaiian and Aloha airlines have raised rates to cover the rising cost of fuel. Aloha is adding $3 a flight, while Hawaiian will add $2.79 plus taxes per passenger on each leg of interisland flights.

• Hawaiian Electric Co. has raised the fuel charge passed on to customers by 2 cents a kilowatt hour between January 2002 and January 2003. That equates to an additional $12 per month for the average household using 600 kilowatt hours of electricity a month.

Fred Kobashikawa, a Hawaiian Electric spokesman, said the utility keeps a 30- to 45-day supply of fuel to run its power plants, helping to spread out the effects of higher prices. "That means there shouldn't be an immediate impact if there is a price spike," he said.

One expert said higher costs are the last thing Hawai'i needs.

"We're not in as good a shape as we might be" to handle the impact, said Leroy Laney, an economics and finance professor at Hawai'i Pacific University and chief economic consultant to First Hawaiian Bank. "We're still recovering from the effects of 9/11, and tourism is weak already."

Should gasoline prices remain high, it's unlikely legislation recently passed to curb gas prices will help. The Legislature passed a law last year that would put a ceiling on local prices starting in mid-2004. But the findings of a preliminary study released last month showed that such a move could lead to higher, more volatile prices.

Although legislators have yet to decide on the gas cap, it's unlikely the ceiling will be allowed to take effect, said Rep. Joe Souki, D-8th (Wailuku, Waiehu).

"Either way, gas caps are dead — either through (Gov. Linda) Lingle or the Legislature," he said.

Rather than cap prices, Souki said the state should step up monitoring of gas prices and companies, and repeal laws that regulate the location of gas stations and cap their rent.

State consultant Stillwater Associates recommended repeal of the laws to increase competition and drive down prices.

ChevronTexaco and Tesoro Hawaii have said it's unlikely there would be any supply disruptions in case of war with Iraq. Both said they were talking with customers to anticipate supply needs and considering stockpiling oil.

"We do keep a few days more fuel because we're in the middle of the Pacific, and it's a prudent thing to do," said ChevronTexaco spokesman Albert Chee.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.