How Crowley fuel prices are set

by Angela Denning-Barnes on October 10, 2012

The weather’s getting colder and Bethel’s last fuel barge is on its way. “Last” meaning it’s the last one before the Kuskokwim River freezes. Western Alaska’s biggest fuel supplier, Crowley, says their last barge will be in Bethel in about a week. Along with it will inevitably come a change in the prices for gasoline, heating fuel, and other petroleum products. And these price changes will last the Y-K Delta most of the year. Even if fuel prices go down elsewhere, residents in the region will be paying the same price until next summer when the river opens up again.

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Communities in the region continue to look at alternative energy such as wind farms to help cut costs.

Bob Cox, Vice President of Crowley, says he’s seen a lot of home insulation projects and people improving their furnaces and stoves. He says these efforts are important, but he also knows his petroleum business is secure.

“Probably for a long time, heating oil is going to be the fuel of choice,” he says.

So what goes into setting the prices for gasoline and heating oil?

“Buying the fuel, transporting it, storing it, and ultimately delivering it,” Cox says.

It breaks down something like this:

Two-thirds of the fuel price comes from the refiner, where Crowley purchases the fuel. Added to that is the distribution and overhead costs which includes regulatory expenses. And then there’s the profit margin.

Crowley buys fuel from Nikiski and Anchorage as well as from the West Coast in the Lower 48. Cox says what they pay the refiners fluctuates significantly because “the fuel markets are extremely volatile”.

Over the past 6 years, the price of crude oil has fluctuated from about $80 to $140 a barrel.

“As that price fluctuates, then that affects the price that we pay for fuel, and on through to the ultimate consumer in Western Alaska,” says Cox.

Fluctuating markets only go so far in Western Alaska though. Sometimes the price of crude oil goes down elsewhere, but prices in Western Alaska still go up.

One reason is the left over fuel in the storage tanks, Cox says. In Bethel, for example, Crowley can store 14.8 million gallons of petroleum products and there’s always some leftover from year to year.

“We simply average the cost of this year’s fuel and last year’s fuel and make a price adjustment accordingly,” Cox says.

Getting the fuel on-shore also costs money. Crowley’s barges travel around part of the Aleutian chain to get to markets on Alaska’s West Coast. Then to get the fuel to a place like Bethel on the Kuskokwim River, the company transfers the fuel to smaller shallow-draft barges that can navigate rivers.

Cox says they have been improving their equipment, like investing in double hulled barges to make things more efficient on their end.

“We’re trying to be more efficient about what we do, in at least, that maybe the one-third of the cost of a gallon of heating fuel that we can really control, we can do a better job of that,” said Cox.

On Crowley’s website, they say consumers can also cut costs by to improving the following: dredging, port development, community tank farms, and timely fuel orders.

Meanwhile, gasoline prices in Bethel remain at about $6.75 in town, and about $6.50 at the fuel farm. Residents can only wait and see how the last fuel barge will affect what they will be paying for the next 9 months.

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