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August 19, 2013 How Connecticut Works: Gasoline Prices

How CT gasoline pricing works

Photos | Pablo Robles The Shell Station in Waterford, owned by Hendel’s Inc., had its price per gallon of regular unleaded soar above $4 at the end of July. (Above right) Candace Tiggett from Hartford fills up at the station, while (below right) cashiers Danielle Giggi and Mike Burnett ring out customers at the food mart inside the station, offering a variety of products designed to increase the business’ margins.

Of all the money you pay when you fill up your car with gasoline, the smallest portion of it goes to the business selling it to you.

“There is very little left over,” said Doug Hendel, president of Hendel's Inc. in Waterford, which owns 35 Connecticut gasoline stations. “We are a volume business. That keeps prices down because we have to sell a lot of gas.”

Of the money paid at the pump, 66 percent goes to cover the cost of crude oil, which is extracted from fields around the world, according to the U.S. Energy Information Administration. Another 11 percent goes toward refineries and their profits. The national average for taxes is 12 percent of the retail price, but Connecticut has the third highest state gasoline taxes in the nation, so Connecticut motorists are sending a greater percentage of their dollars to state coffers.

What percentage remains is split among distributors, marketers, and retailers. With their share, retailers must cover typical operating expenses as well as infrastructure, mortgage, and cleanup costs, which could significantly eat into their bottom line.

“There is not a lot of margin in selling gasoline, which is why you are seeing more gas stations selling pizza and hot dogs,” said Chris Herb, president of the trade group Connecticut Energy Marketers Association, representing 1,400 stations. “The retail component is the smallest component of the cost of gasoline.”

Credit card companies get as much as 8 cents per gallon when motorists use credit to pay, which the majority do, Hendel said.

“Our margin is usually lower than what the credit card companies make,” Hendel said.

Nearly every Connecticut gas station has a competitor within a block or two, Hendel said. With the price per gallon of fuel posted in giant numbers on their signage, consumers know where to find the best deal. That makes the industry competitive, forcing station owners, at times, to sell their gas supply at a loss so their prices remain in check.

That happens, for example, when retail prices fall after a station owner has already purchased gas from a supplier at a higher price.

“The price of gas is probably the most known price of any commodity,” said Terry Crowley, gasoline division manager for Hendel's.

The majority of Connecticut's gasoline comes from the Port of New Haven, where several oil companies like Shell and Exxon have storage facilities. New Haven is the No. 5 busiest port in the country for petroleum products, after New York City, Tampa, Fla., the Port of South Louisiana, and Port Everglades in Florida.

“This is where our strength is,” said Judi Sheiffele, executive director of the Port of New Haven. “It leads to the economic and energy security of the state.”

The rest of Connecticut's gasoline comes to the state via truck. There are no pipelines from refineries into Connecticut, although the state has a pipeline from New Haven to Andover that delivers gasoline inside the state.

“There would be advantages to having pipelines directly from the Gulf of Mexico to Connecticut,” Herb said. “The fewer points of supply that you have, the fewer options that you have.”

The average Connecticut station gets a delivery of gasoline every four to five days, receiving roughly 8,500 gallons, depending on the size of the station's tanks and level of business.

Hendel's will try to time the station refills with falling commodity prices of the fuel, but supply needs really dictate when gasoline stations refuel.

“You have locations that have to have gas or they run out,” Hendel said. “You have locations that can't take any more gas because they just filled up.”

About 85 percent of all gasoline products sold in Connecticut is the regular unleaded blend. Each brand, such as Mobile, has its own cleaner blend of gasoline that reduces additives to decrease the wear on vehicles. On the flip side, unbranded gasoline tends to be cheaper.

“They are less expensive, and, one could argue, of lesser quality,” Hendel said. “You get what you pay for.”

Connecticut's gasoline is brought into the state via boat or truck, but it originates from refineries in the Gulf of Mexico and Canada.

From May 1 from Sept. 15, those refineries are required by the U.S. Environmental Protection Agency to create a blend called reformulated gasoline specifically for Connecticut and other population dense cities and states along the East Coast.

The reformulated gasoline burns cleaner and reduces smog-forming and toxic pollutants. The EPA started requiring it in 1995 for heavy urban areas with potential for smog.

“Studies show that reformulated gasoline will cost refiners 2 to 4 cents more per gallon to make,” said John Rogan, environmental specialist at EPA. “However, price increases reflected at the pump will vary depending on local and regional market conditions as the industry responds to the new requirements.”

Refineries make other petroleum products as well. Motor gasoline makes up not quite half of their yield. Fuel oil for heating is almost one third of their yield while the rest is split with jet fuel and other proudcts such as asphalt oil, waxes, lubricants, and kerosene.

All of that comes from crude oil from around the world.But 60 percent of American gasoline actually comes from U.S. fields, including the two top oil-producing areas, the Gulf of Mexico and Texas, which account for nearly two-thirds of American production.

The commodity price of crude oil remains the single biggest determiner of gasoline retail prices, and the commodity price is influenced by trading, speculation, the stability of the world's oil supply, and how the world economy is performing. In mid-August, a barrel of oil cost about $105, while the price per gallon retail hovered around $3.95 in Greater Hartford.

Still, any disruption with transportation, refineries, or storage can influence the price at the pump.

Ultimately, the decision of how much you pay at the pump is made by the gasoline stations, which each day must determine how thin of a profit margin — or loss — they take on the world's No. 1 transportation fuel.

“The vibrant competitiveness of the industry keeps the costs down,” Herb said. “The only thing a retailer can do on price is lower the amount they are making on it.”

Refinery Yield

U.S. refineries make a number of petroleum products. The leading ones in May 2013 were:

% of

Product Yield

Motor Gasoline 44.1

Distillate Fuel Oil 29.4

Kerosene- Type Jet Fuel 9.1

Liquefied Refinery Gases 5.4

Petroleum Coke 5.3

Still Gas 4.3

Domestic Producers

Top U.S. states for crude oil production

% of

national

State production

Texas 26

Alaska 10

California 9

North Dakota 7

Oklahoma 4

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