Posted on: Sunday, May 16, 2004

Gas price trends skip Hawai'i

By Sean Hao
Advertiser Staff Writer

Gasoline at $2-plus may outrage consumers on the Mainland, but it's hardly new for Hawai'i drivers. The average price for regular gas has been at or above that level in Hawai'i for 15 months.

What is curious is that it has stayed there, regardless of what has happened to crude prices.

"That's Hawai'i — we go up when everybody goes up and we never come down," said Frank Young, president of the Hawaii Automotive Repair and Gasoline Dealers Association and an advocate for gasoline price controls.

Mainland drivers enjoyed two major price dips last year that Hawai'i missed. After an Iraq war-led increase, gasoline prices began to retreat in May 2003. The nationwide average fell to about $1.50 a gallon. Hawai'i's stayed above $2. Again in the fall, after climbing in late summer, gas prices dipped to about $1.50, but not in Hawai'i.

Oil industry analysts said such pricing behavior is a result of Hawai'i's isolation, small market and lack of competition. Albert Chee, a spokesman for Chevron- Texaco, said comparisons between Hawai'i and other markets aren't valid because of differences in the cost of doing business, regulations and taxes, among other things.

"Hawai'i is very different than the Mainland," Chee said. While crude oil prices and retail gasoline prices don't always move together in the short-term, over the long-term Hawai'i's rising gasoline prices result from higher crude costs, Chee said.

"The only increase at the wholesale level has been attributable to the higher crude oil prices," he said.

Other factors behind Hawai'i's gas prices include high costs for land, labor and other resources, and the nation's highest gasoline taxes, at 58 cents per gallon of regular.

The apparent disconnect between Hawai'i's retail gas and crude oil prices also can work in consumers' favor when — as happened in recent months — crude prices rise rapidly and Hawai'i prices stay relatively stable.

The gap between the U.S. average for regular and the Hawai'i average in April was the smallest since March 2003, according to AAA data compiled by the Department of Business, Economic Development and Tourism.

This month, however, Hawai'i prices have been lurching up again.

Local wholesale gasoline prices are rising regularly now, said Bill Green, owner of Kahala Shell across from Kahala Mall. The average price for regular had hit $2.139 a gallon on O'ahu as of Friday. The statewide average rose to $2.223 a gallon for regular, according to the AAA travel club.

"Now, when they get a spike on the Mainland, they'll pass it on to us," Green said.

Based on forecasts for continued high crude oil prices and heavy summer demands for gasoline, prices for regular are predicted to peak at about $2.03 a gallon nationwide in June and then decline several cents, according to the most recent monthly forecast by the U.S. Energy Information Administration.

"That in itself doesn't mean good news for Hawai'i," said Jacob Bournazian, an economist in the petroleum division of the EIA, which collects and analyzes data for the U.S. Department of Energy. "Hawai'i prices will definitely be upwardly sticky."

In Hawai'i, a lack of competition keeps prices from falling as far and as fast as on the Mainland. For example, when crude oil prices spiked in August after an East Coast power outage temporarily shut down several refineries, the national average price for gasoline peaked the following month at about $1.67 a gallon for regular. In November the national average returned to its July level of about $1.50 a gallon.

In Hawai'i, the statewide average peaked at about $2.11 a gallon in September and had yet to fall to its July level of $2.04 a gallon when the latest spike in prices started in March.

"The reason (national gasoline prices) were down in the summer and in the fall is higher prices triggered increased supplies that drove down the price," Bournazian said. "Those market forces don't operate in Hawai'i. That's where there's the rub in your market. It's going to follow it's own trend independent to prices on the Mainland."

Shell's Green agreed that lack of competition keeps prices from falling quickly. "Without that strong competition, the prices won't go down that rapidly," he said.

Similarly, a lack of Mainland-type competition at the wholesale level is commonly cited as a factor in Hawai'i's high gasoline prices. The state has two refineries, one operated by ChevronTexaco Corp. and the other run by Tesoro Petroleum Corp.

According to a state study conducted by Irvine, Calif.-based consultant Stillwater Associates, local refiners earn a healthy profit that would not be possible in a larger, more competitive market. However, high operating costs and low volume keep their profits from being unduly large.

Responding to public frustration over Hawai'i's high gasoline prices, the state Legislature adopted a price cap in 2002 but has not allowed it to take effect. The price caps originally were scheduled to start July 1, but lawmakers recently sent Gov. Linda Lingle a bill that would delay them until September 2005.

For the time being, Hawai'i consumers are likely to continue seeing their gas prices move in baffling ways.

"There's no question that the rhythms of the Hawai'i market are different from the rhythms of any other markets we've observed," said David Hackett, president of Stillwater Associates. "It's a tiny market and there is competition, but I think retailers have learned that they don't have to compete on price."

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