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Report looks at ‘why’ behind high fuel ISER study looks at 10 communities to see what drives high fuel prices in rural Alaska; full report to follow later this month Eric Lidji Petroleum News
High oil prices combined with refining and transportation costs will always make fuel oil more expensive in rural parts of the state, but smaller, and possibly controllable, factors might also be at play, according to a new University of Alaska Anchorage report.
Obstacles like seasonally frozen rivers, undersized ports, limited storage facilities, distance from refineries, poor coordination and local sales tax all help to increase the cost of fuel oil, according to a study by the Institute of Social and Economic Research.
The news isn’t shocking, but does provide a glimpse at the possible ways to pare down the fuel oil costs in parts of rural Alaska where households, businesses and governments pay several dollars more than the already expensive prices of urban Alaska.
“The research was to try and untangle the components of fuel cost. The second step is sort of the policy analysis,” said Ginny Fay, one of the five authors of the report.
The Alaska Energy Authority requested the study, which fits together the various pieces responsible for the final price of a gallon of fuel oil in 10 small communities around the state. Together, these communities represent the diverse spectrum of transportation and storage issues facing the state.
The current information comes from a summary of a report due out by the end of June. The full report will take a more detailed look at world oil markets and refining costs, among other factors connected to fuel prices.
The report catalogues data from November 2007, when the price of crude oil was around $80 a barrel. At the time, crude oil and refining accounted for $2.31 per gallon of fuel oil.
Today, a barrel of crude oil costs around $130 a barrel. That run up in oil prices changes the components of a gallon of fuel oil, particularly because refining and transportation costs get more expensive, but the authors of the report said the higher prices don’t change the facts on the ground.
Distance not always the main factor Distance, for instance, isn’t always the biggest factor in pricing. The type of transportation, whether by barge, plane or truck, often makes a larger impact, as well as how much fuel the community can store at any one time.
Of the communities surveyed, the cheapest prices were in False Pass, a village of 54 on the eastern end of the Aleutians. The village gets fuel oil barged in 850 miles from Anchorage to the village once a year, which locks in prices for better or worse. This trip and a 3 percent local sales tax account for 20 percent of the cost of fuel.
By comparison, the 250-mile truck ride from Anchorage to Chitna, a small road system community without a local sales tax, accounted for 32 percent of the $3.41 the community paid this past fall for a gallon of fuel oil.
The most expensive community was also the smallest: Lime Village, a community of 25 on the Stony River in the Kuskokwim Delta.
Fuel oil shipments to the village take a three-part journey, starting with an 1,800-mile barge from Anchorage to Bethel, followed by a second barge to Sleetmute and a flight to Lime Village, where the fuel is stored in a local 1,800-gallon tank. This trip helps account for 63 percent of the cost of fuel, which was $6.25 a gallon last November.
The authors note that public policy will never completely level the playing field between rural and urban Alaska, but do offer some suggestions for easing the price crunch for rural communities, like forming multi-village co-operatives, selling state royalty oil to refineries below market value and improving barge landings in smaller communities.
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