With arrival of new fuel, prices at the pump increase
By Peter Loewi
After weeks of speculating on the amount of the anticipated price increase, the prices of fuel and diesel are no longer below the five-dollar mark. On Wednesday, July 6, Bonanza Fuel in Nome raised their price for a gallon of unleaded to $7.09 and to $7.57 for diesel. Shortly afterwards, Crowley raised their prices to $7.00 and $7.34 for unleaded and diesel, respectively. By the end of the week, Bonanza had changed their prices again, lowering them to just below Crowley’s prices at $6.99 and $7.33.
Bonanza Fuel’s CEO Scot Henderson explained that a lot of things go into setting a fuel price, and in this “perfect storm,” all the components having contributed to the significant increase in prices. The rise in the cost of crude oil has been getting all the attention, but the cost of refining has increased, too, as have shipping costs, and rising interest rates have impacted companies which borrow money to purchase fuel. “Literally everything has gone up,” Henderson said.
Twelve months ago, the price for a barrel of crude oil was around $75. Over the span of the year, crude has been as low as $62 and as high as $123, but as of this writing was selling for around $103. According to data from the U.S. Energy Information Administration, an independent government statistics agency, in July 2021, when the national average retail price for a gallon of unleaded gas was $3.13, 54.9 percent of what a consumer paid was the cost of crude oil, 17 percent was the cost of refining, 15.6 percent were taxes and 12.5 percent was the cost of distribution and marketing.
In the latest data collected through May 2022, when the national average of fuel at the pump was $4.44, those number were: 59 percent was crude oil, 26 percent was refining, 11 percent were taxes and 5 percent was for distribution and marketing. The USEIA doesn’t have data specific to Alaska, but presumably, the distribution portion would be greater portion than elsewhere.
“We look at all of those costs, trying to factor everything into the equation, and then always trying to balance earning a reasonable rate of return for our shareholders and also keeping fuel prices affordable for the local community,” Henderson said.
Bonanza tanks can store over five million gallons of fuel, which means that they don’t have to buy all their fuel at one time. In 2020 at the start of the pandemic when demand was extremely low, they purchased about a year and a half’s worth of fuel because they had the storage space to do so. Now, with prices as high as they are, they didn’t want to fill their tanks quite yet. “We are purchasing fuel again this fall and once we get our fuel in for this fall, then we’ll look and set the pricing for the winter and part of next summer,” Henderson said.
This year, Nome Joint Utilities has been taking a similar strategy of not purchasing everything all at once. Assistant Manager Ken Morton wrote in an email to the Nugget that “this year, because of fuel pricing, we are opting to purchase the minimum (1,700,000 gallons) we can per the Western Alaska Fuel Group contract with our fuel supplier.” The Western Alaska Fuel Group is a group of local utilities which have banded together to purchase fuel together. Its members are Kotzebue Electric Association, NJUS, Unalakleet Valley Electric Cooperative, Nushagak Electric Cooperative and Naknek Electric Association.
Morton explained that they have the option of purchasing fuel in advance. “So far this season, we have placed three orders that together total just under one million gallons. If we do not commit to a price for the remaining volume prior to the fuel tanker’s loading, the price will be based on an index average for the month of loading,” he said.
The 1.7 million gallons to be purchased by NJUS for this year is a little below average. Usually, Morton wrote, they purchase around two million gallons of fuel oil per year. Approximately 190,000 gallons of those two million gallons are purchased by Nome Public Schools.
NJUS has a storage capacity of a little over three million gallons. They have four above-ground tanks, each 40 feet tall and 60 feet in diameter.
With the barge visible off the coast, residents long knew that the rise would be inevitable. To deal with it, they topped up every fuel container they could find and making Bonanza crews “extraordinarily busy” to deliver heating oil. Henderson thanked the entire staff for filling and refilling orders of all sizes around town before the rise.
“Fortunately, recent pricing has been trending downward,” Morton wrote.
A spokesperson for Crowley Fuel did not respond to a request for a comment.