The Herald, Sharon, Pa.

Business

November 21, 2008

Why is gas cheaper in Ohio? Taxes, distribution chain are behind higher gasoline prices in Pa.

By Michael Roknick

MERCER COUNTY — Talk about gas pains.

Motorists traveling across the Pennsylvania and Ohio border quickly notice a difference in gas prices. On Thursday a gallon of gas could be had for around $2.05 at self-serve gas stations in the Shenango Valley but prices in Hubbard were about $1.83 — a 22-cent difference.

One culprit is Ohio’s gas tax is four cents a gallon cheaper than Pennsylvania’s.

Given that, why can refiners charge 18 cents more a gallon in western Pennsylvania than Ohio? There are a number of technical reasons and then there’s the real reason — because they can.

This isn’t a matter of collusion between refiners, said Kent Moors, an energy analyst and a professor at Duquesne University’s Graduate Policy Center.

“There’s no conspiracy going on here,’’ Moors said. “Refiners don’t have to conspire. They can take and make unreasonable profits under the insufficient regulations now in place.’’

Western Pennsylvania consumers also pay more than those in eastern Pennsylvania.

One factor is western Pennsylvania is at the end of distribution lines for refiners providing much of the gas for the area, thus making shipping costs more expensive, Moors said.

With that added cost western Pennsylvania is less attractive to gasoline suppliers.

“Where the oil goes once its refined and in terminals is in large measure dependent not on consumer needs but profit margins,’’ Moors said. “Western Pennsylvania is at the bottom of the list for the biggest bang for the buck.’’

This difference in shipping costs are more pronounced when gas prices go down than when they go up, he added, which is what’s happening now.

There are also fewer players in the market.

Over the years oil mergers have gobbled up companies and the U.S. now has 58.4 percent of all gas sales controlled by five oil companies and the top seven oil concerns control 73 percent of all sales. These companies earn a buck by controlling the entire process from extracting the oil, refining it into gasoline and then selling it in the wholesale and retail markets, Moors said.

Even though a refinery may be located close by, such as with the United Refinery in Warren, Pa., a local station may be buying elsewhere due to a long term contract they have with another supplier.

“You don’t only look at the brand name of the retail gas station where you buy the gas, you need to know where the station buys it from,’’ Moors said. “You can have a mom-and-pop gas station and they’re still buying their gas from Exxon.’’

Compounding the problem is western Pennsylvania has fewer independent gas than other parts of the country. These independent stations often can bargain among suppliers and get a better deal.

Local gas retailers aren’t pumping up the price of gas, Moors insists.

“This is not the retailers fault,’’ he said. “The guy pumping gas into your car is dependent on the gas prices being charged to him. Don’t dump on the guy who owns the local gas station.’’

The only way Moors sees gas prices ever evening out is to create a national energy policy. A lack of such a policy is forcing regions to compete with each other and western Pennsylvania is losing employment, capital investment and is outsourcing jobs in part due to these higher energy costs.

Other than labor, energy is the most expensive costs for a number of companies, particularly those in manufacturing and transportation.

“These outsourcing of jobs aren’t necessarily going to India and China — they’re going to South Carolina and Texas,’’ he said.

A lack of an energy policy helps some and hurts others.

“That’s what we have to do, we have to spread out the hurt,’’ Moors said. “Nobody wants to do that. Nobody wants to bite the bullet.’’

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