A growing gap in the market price of gasoline between the New York and Gulf Coast will likely make gasoline more expensive for Savannah area consumers in the coming months.
Ironically, the culprit may be cheaper gasoline coming out of the Gulf Coast refineries.
According to the Oil Price Information Service, deepwater ports traditionally supplied from offshore now face much higher costs than pipeline terminals that can leverage rising Gulf Coast refining capacity.
“There is a lot of product coming out of the Gulf Coast right now due to cheaper crude,” said Rob Demere, president and CEO of the Colonial Group, whose terminal supplies most of the area’s retail gasoline dealers.
“Unfortunately, most of what isn’t going into the pipeline is being exported – to South America, Mexico and the Caribbean.”
Savannah — like most coastal communities — is not on the Gulf Coast pipeline.
Since it began in 1921, Colonial Terminal has been buying gas internationally, Demere said, paying New York Harbor prices and selling to local wholesalers based on Gulf Coast pricing, which has traditionally been no more than 4 to 5 cents per gallon lower.
“For the last six months, however, the spread has been growing and now stands at nearly 30 cents,” he said. “Needless to say, we can’t continue to absorb that kind of difference and have to raise our rates accordingly.”
The higher price to wholesalers goes into effect today.
The result will be higher prices at the pump in Savannah, but how much higher is anyone’s guess.
“Honestly, we aren’t expecting to sell that much gas at these prices,” Demere said. “I’m sure a lot of retailers will be looking at bringing in gas from the closest pipeline terminals.”
In fact, he said, he has encouraged Colonial’s Enmark retail subsidiary to look at other options as well.
“But, for now, we’re between the devil and the deep blue sea.”
John Powell, senior petroleum market analyst for the U.S. Energy Information Administration, agreed.
“What historically has been a good relationship for Colonial — buying at New York Harbor prices and selling at Gulf Coast plus freight — has now completely flip-flopped on them.
Powell blamed the effects of Hurricane Sandy, which cut supplies in New York, along with the relative glut of crude in the Gulf.
Energy consultant Don Draisin, who procures gasoline contracts for a dozen retailers, including the Savannah-based Parker Companies, said the sudden increase will force affected companies here to look at trucking in pipeline gasoline, most likely from North Augusta, S.C.
“But that’s often easier said than done,” said Draisin, a veteran of more than 40 years in the oil industry.
“The pipeline is running at a high volume right now, which means it has very limited additional capacity to sell,” he said. “Then, there is the issue of finding more tankers to haul the product.”
Factoring in the drive time, it will take twice as many trucks to service the same customers from 126 miles away, he said.
Daisin said the public will begin to see prices at the pump go up when current gasoline inventories, purchased before the increase, are depleted.
How much is hard to say.
With an increase in the terminal price of 25-30 cents a gallon, a lot will depend on how much gas is trucked in, Powell said, adding it’s not likely the pump price will reflect the full increase.
He called the wide discrepancy between New York and Gulf Coast pricing “a short-term aberration.”
“I expect pricing to settle back down within the next few weeks.”
Daisin isn’t so sure.
“The sticker-shock price should be very temporary,” he said. “But I think we’ll see a price differential of at least 10 cents lingering for the long term.”
The potential for a major long-term differential makes the case, Demere said, for one of his lifelong hopes — the repeal of the Merchant Marine Act of 1920.
Better known as the Jones Act, the legislation requires that all goods transported by water between U.S. ports be carried in U.S.-flagged ships, constructed in the United States, owned by U.S. citizens and crewed by U.S. citizens and U.S. permanent residents.
The act, originally designed to protect the U.S. maritime industry, now makes such things as transporting gasoline by vessel from Gulf Coast refineries to Savannah nearly impossible, Demere said.
“There simply aren’t enough U.S.-flagged ships to make a dent in the need.”
In 2010, U.S. Senators Jim Risch and John McCain introduced a bill that would have repealed the Jones Act, which McCain claimed restricts shipping and raises costs to consumers. The bill failed to pass.