Quantcast

Rural drivers, diesel users feel pump pain

Published December 10, 2006 12:00 am

Experts say two groups pay more due to a lack of competition in outlying areas and a high demand for diesel
This is an archived article that was published on sltrib.com in 2006, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Months after paying some of the highest gas prices in the country, Utahns finally are filling up for less than the national average.

But not everyone is filling up on the cheap.

Utah's average of $2.29 is one penny shy of the nationwide price. That represents a vast improvement for consumers who just a few months ago were paying prices nearly 40 cents more per gallon more than drivers in other states.

The lower prices are a much-needed economic boost to many Utah families, but not those who rely on diesel fuel or residents of rural areas of the state.

"Prices still are pretty awful around here," said Guido Salzetti, a retiree who lives in Helper, near Price in Carbon County. "You'd think they [gasoline prices] would be lower given that there's a lot of crude oil production in this area of the state."

Not so. Salzetti said he paid less than $2.10 a gallon for regular unleaded gasoline in Orem last week, while gas stations in Carbon County still are charging $2.46 or more.

"I know it costs a little bit to bring in gasoline from the refineries in Salt Lake, but it doesn't cost 30 cents a gallon for freight," he said.

The highest-priced gasoline is found in the Scipio area, off I-15 in the center of the state, where prices are pushing $3 a gallon for regular unleaded, according to http://www.utahgasprices.com, which lists the highest and lowest gas prices in Utah.

John Hill, executive director of the Utah Petroleum Marketers and Retailers Association, said several factors can help explain why gas prices are higher in rural areas. Additional transportation costs are one reason, but competition also plays a role.

"In a lot of [rural] areas you don't have as much competition, which helps keep the price down" elsewhere. Additionally, stations in rural communities often sell far less gasoline than stations in urban areas, so they charge more to maintain profit margins.

Consumers in rural communities, though, aren't the only ones facing higher prices. Those who operate vehicles that run on diesel fuel - in rural or urban Utah -are not happy, either.

The average cost of a gallon of diesel fuel in Utah, which peaked at $3.50 on Sept. 1, is still averaging $2.78 per gallon - or about 9 cents higher than the national average, according to AAA Utah. Last week, diesel was priced on average 48 cents higher than regular unleaded gasoline. That disparity rankles people who bought diesel-powered vehicles, in part to trim their fuel bills. Historically, diesel fuel has cost about the same as unleaded gasoline, and at times it was cheaper. Combine those once-favorable prices with the fuel efficiency of many diesel-powered vehicles and the savings were substantial.

That's why Debbie Elder of South Jordan is upset that it costs so much, comparatively, to fill up her family's diesel-powered Dodge pickup. When she and her husband bought the truck in August, diesel prices were close to the cost of premium unleaded.

Diesel prices in Utah the week of Oct. 6-12 averaged $2.64 per gallon, while premium gasoline averaged $2.86 - 22 cents higher. Last week, diesel prices averaged $2.77 per gallon - 27 cents higher than premium.

"I just don't understand why diesel costs so much more than regular gasoline," Elder said. " I thought it was cheaper to produce."

Theoretically that's true, but that is not the case this year, said Lee Peacock of the Utah Petroleum Association.

Utah refineries were forced to spend millions for capital improvements to meet ultra-low-sulphur diesel-fuel standards mandated by the Environmental Protection Agency. Those changes were completed this past summer, he said, and the costs to make the improvements were substantial enough to push diesel prices higher.

Add high demand, particularly from a national trucking industry responding to a booming economy, and you have a recipe for high prices.

"Utah continues to demand high quantities of diesel fuel," Peacock said, noting that demand is generating volatility in the price of diesel in relation to other grades of motor fuel. Many Utahns sitting behind the wheels of diesel-powered vehicles are angry, although their smaller numbers in relation to all drivers aren't likely to prompt an investigation of pricing practices.

Late this summer, when the average cost of unleaded in Utah was nearly 40 cents higher than the national average, consumer outrage led to a state investigation. The probe eventually placed most of the blame on gasoline retailers for "price-gouging," though a report in the The Salt Lake Tribune showed that high demand driven by a strong economy also played a key role.

But that investigation, said Department of Commerce chief Francine Giani, focused on unleaded gasoline, not diesel, and also was not targeted to the state as a whole, where it might have addressed the disparity between urban and rural areas.

Giani said she believes that regardless of what type fuel Utah consumers use or no matter where they live, they should expect that gas prices will remain an issue for some time.

One reason is because the state has limited access to pipelines carrying refined gasoline. In addition, Utah's refineries are operating near capacity, and high demand for gasoline is expected to remain that way because of Utah's sizzling economy and the prospects for long-term growth in population. Giani cautioned that some retailers periodically will seize on opportunities to make added profits, bordering on "gouging."

Hill, of the Utah Petroleum Marketers and Retailers Association, still bristles at the state's allegations that gasoline-station owners took advantage of customers when Utah's prices were above the national average for an extended period.

"No one ever said anything when our prices were lower [than the national average], which frequently is the case. And the state never explained that the gross margins for fuel retailers fluctuate when averaged over the course of a year or that Utah's [gasoline retailers] usually average a gross profit margin of 3.5 percent to 4 percent."

That said, many saw their margins double in late summer when a gallon of regular unleaded averaged nearly $3 for weeks on end.

Today, Utah retailers are making an average of 1.8 cents profit on each gallon of gasoline sold, he said.

"And that means that on a 12-gallon fill, the retailer is making around 22 cents." Out of that, "they have to pay their employees, purchase new inventory, service their debt and try to generate a profit so they can stay in business."

lesley@sltrib.com

steve@sltrib.com

Cheap gas, fastFor a listing of the lowest and highest gas prices in the state, go to http://www.utahgasprices.com