From Deseret News archives:

Gas-price reason called bogus

3 explanations are considered valid but one raises eyebrows

Published: Friday, Sept. 22, 2006 12:05 a.m. MDT
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Peter Van Doren, a senior fellow at the Cato Institute and editor of the journal Regulation, also did not find the argument of waiting to lower retail prices until expensive supplies were sold plausible. But he said the other explanations offered seem reasonable.

"The mountain states are more isolated than other states, so if the main refineries that supply Utah have gone down for fall maintenance at once," not much opportunity exists to bring in supplies from other areas to lower costs, he said.

Burdette said the Rockies are indeed an isolated gasoline market. By contrast, he said markets in the South, Midwest and East are more easily connected by pipelines and ships (and also are better connected to imported supplies). So if supplies become tight in one area, they can be shifted among those regions to help lower prices.

"That is not the case in the northern Rockies, or the West Coast," he said. "So for example, when tourist traffic is high (in Utah) in the summer, markets tend to get tight, and there is no pipeline to help directly from, say, California or Texas."

Burdette adds, "That is the plight of self sufficiency. When the market gets tight, you have to wait for the market to catch up with demand."

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Isaacson and Burdette note that refineries often tend to shut down briefly in the fall and spring to allow shifting between summer and winter grades of fuel, and to allow more productions of heating fuel in the winter.

"But 85 percent of Utah uses natural gas (for heating) and not heating oil, so that shouldn't be an excuse for limiting supplies," Isaacson said.

The biggest factor for prices to fall would be very localized competition between stations in the same area, Isaacson said. But Burdette said extra supply is needed for such competition (and the extra sales it would bring) to really drop prices quickly — and that may not be available at a time when refineries are doing semiannual maintenance.

Isaacson also noted that many national studies show that big hikes or drops in wholesale prices tend to be followed by smaller retail increments spread over several weeks, so what has happened recently in Utah is not unexpected or new.

A tiny bright spot may be on the horizon because of high gas prices, Isaacson said. They are reigniting interest in developing oil shale and tar sands in Utah, which could help increase local supplies over time.

"But to get it in production where it will significantly affect American supplies, that will be 10 years down the road," he said. "It might do some good locally sooner. But it will still be at least five years before it is scaled up to the point that it affects the local market."


E-mail: lee@desnews.com

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