So Why Are North Carolina Gas Prices so High?

By Andrew Shain, The Charlotte Observer, N.C.

Oct. 16–It’s hard to fathom: Charlotte drivers last week paid the country’s highest gasoline prices outside Hawaii.

The metro area’s gas usually is among the nation’s cheapest — but not since Hurricane Rita.

Charlotte’s average for regular gas since Rita remained above $3 a gallon for two weeks. The national average never passed $3 post-Rita.

What’s making Charlotte a national gas-price pacesetter?

The industry cites gas production and pipeline disruptions since Hurricanes Katrina and Rita sliced through the Gulf of Mexico in less than a month. Almost all of Charlotte’s fuel comes from the storm-riddled region. Tight supplies spiked prices.

Having one of the nation’s top state gas taxes doesn’t help.

And yes, Charlotte station owners are taking a little more profit than normal — though probably not as much as drivers think.

Gas prices are falling, but Charlotte’s averages slid slower than elsewhere for the better part of last week. That nudged the region, already among national price leaders, to the top.

Oil companies and convenience-store operators say they’re stumped beyond the production disruptions and state tax.

They might not have a lot of incentive to say much because of a price-fixing investigation by the state attorney general.

“They keep saying, ‘This is my story and I’m sticking to it,’ ” said Peter Schwarz, a UNC Charlotte economics professor who specializes in energy issues. “But there are some holes in their story.”

Here’s what we know and some informed theories about why Charlotte’s gas prices rose so high and stay so high:

The two hurricanes smacked almost the entire width of the Gulf oil and gas production.Katrina swept over the Louisiana and Mississippi coasts Aug. 29, cutting power to Charlotte’s gas pipelines for three days.

Large oil company fuel-storage tanks, such as those in north Charlotte, hold up to a five-day supply. This is done, in part, to prevent companies from losing money if wholesale gas prices tumble. (By the way, oil companies have no plans to boost storage for what their trade group calls a once-a-century event.)

Wholesale prices zoomed nearly $1 per gallon one day after the storm. The three-day pipeline outage left Charlotte with a week of $3-plus average regular gas prices. They peaked at $3.21 locally and $3.06 nationally.

Prices fell for three weeks to $2.81 before Rita hit the Texas-Louisiana coast on Sept. 24.

More than 15 refineries were down for a week or more, and power outages curtailed gas deliveries through a major pipeline to the Carolinas.

Rita has disrupted gas production and deliveries longer. Charlotte has averaged $3-plus regular gas for twice as long than after Katrina.

Charlotte’s average rose to $3.12 on Oct. 6 — nearly 20 cents higher than the national average. The metro area is usually 8 cents below the national norm.

The hurricanes turned around the way gas prices are usually set.

Gas pricing usually starts at a daily commodities market in New York, where oil companies and sophisticated investors trade what they think gas and oil should cost in the following month.

The oil companies use these futures prices to set current gas wholesale costs. That’s why prices rise at stations days after news about Mideast unrest or higher-than-expected demand: Owners expect to pay more for their next delivery.

Gulf Coast wholesale prices usually are set a few pennies below the futures.

The hurricanes severely curtailed gas supplies from the Gulf, sending wholesale prices from the region well past New York futures prices. Gulf wholesale prices were more than 20 cents higher on average since late August, according to U.S. Energy Department data.

This is a key reason Carolinas gas prices are outpacing the nation.

Another reason is that stations are taking slightly more profit. Typically, the difference between Gulf Coast wholesale costs and Charlotte pump prices is about 60 cents per gallon, according to data from the Energy Department and AAA.

That mark-up includes costs that don’t change — 46 cents for state and federal taxes, two cents for freight and 8 cents for credit-card fees. The rest is profit.

But Charlotte stations are averaging an extra 9 cents in profits per gallon since the storms compared to the first half of the year. That’s an extra $810 per 9,000-gallon delivery.

Station owners said they are making up costs for closing pumps during Katrina or for higher transportation costs from getting gas at terminals outside Charlotte. Critics have called it opportunism.

Sami Nafisi said he’s earning more than his typical 6-cent profit after more than a week of scrounging for gas to supply his 70 Charlotte-area stations. “You cannot tell if you’re going to get more gas tomorrow,” said Nafisi, who declined to discuss his current profit margin.

Charlotte’s average fell more than a dime last week, despite ongoing shortages at Charlotte fuel storage terminals. Six refineries — representing about one-third of the region’s daily output — remain shut down after Katrina and Rita. Another seven — representing another third — are restarting or under partial power.

A 12 percent drop in wholesale prices since Charlotte’s Rita pump-price peak has helped.

A fall-off in demand — as much as 25 percent locally, according to estimates — is one trigger, though some station owners have suggested that the oil companies have offered lower-than-usual prices at storage terminals.

That could help end driver complaints about $3 gas, they reasoned. Some area stations were charging into the $2.80s late last week.

Oil companies would not comment on pricing.

Pricing decisions by a few stations could skew averages. Some Charlotte-area stations started charging $3.20 for gas soon after Rita.

Other stations probably paid attention to this new ceiling and priced accordingly to avoid a run by drivers seeking cheap gas, experts said. That could have added a few pennies to Charlotte’s average, they agreed.

Because supplies at the storage terminals have remained tight, stations and wholesalers continued charging slightly higher prices after the storm to keep pumps open.

The industry calls this staying wet, and it’s legal because gas prices are not regulated.

A third of Charlotte’s pumps were shut down at one point after Katrina. Some stations had no gas for a week. Daylong closings have been rare after Rita.

“We all got burned after Katrina,” said Bill Tome, a wholesaler who sells BP gas to 40 Charlotte-area stations and a board member on the state industry trade group. “We all were criticized pretty badly and didn’t want that to happen again.”

North Carolina has the nation’s eighth-highest state gas tax. South Carolina, Georgia and Virginia charge a dime less. Subtract their taxes from average gas prices in those three states and they are charging roughly the same as North Carolina without its state tax.

N.C. Republican legislators announced last week they want to lower the state’s gas tax slightly and cap a portion of the tax that’s slated to rise at the beginning of the year.

Democrats, including Gov. Mike Easley, were lukewarm to the idea. The gas tax pays for construction and repairs to 78,844 miles of state roads and is used to help make shortfalls in other state spending.

STORM SURGE: Average Charlotte metro regular gas prices from AAA:

–Jan. 3 — $1.75

–April 10 — $2.23 (Record at time)

–July 4 — $2.16

–Aug. 29 — $2.53 (Katrina landfall)

–Sept. 3 — $3.21 (Post-Katrina high)

–Sept. 22 — $2.81 (Post-Katrina low)

–Oct. 6 — $3.12 (Post-Rita high)

–Late last week — $3.01

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