The Pump Predicament

A step by step investigation to figure out why Molokai’s gas prices are so high

By Sean Aronson

The gas situation on Molokai is a hot topic these days. Walk into Kanemitsu’s or Friendly Market and you can overhear the locals discussing it. The conversation became even more frequent when the price of gas stayed at well over $4 for nearly a month.

As prices fell dramatically on the mainland and other islands, Molokai residents waited for the drop to come here. It became almost a game to guess when it would fall. Would it be tomorrow or next week?

Despite the banter, most recognize the price of fuel as a serious issue. Higher prices affect everyone from construction workers to soccer moms. For some, it means fewer meals outside the house and even limiting travel.

Outcry

In the past several weeks, the Molokai Dispatch has received numerous requests to investigate the gas pricing. One particularly frustrated individual wrote via email, “there seems that there is nothing we can do here. We are at the mercy of those that control the gas on island. I just needed to vent.”

We set out to demystify the process by which Molokai gets its gas. How is gas transported to the island? Where does it come from? And most importantly, why is the price so much more than on the other islands?

The Source

Most of Hawaii’s fuel comes in the form of crude oil imported from the Mainland, Indonesia and China. The Mainland and Indonesia account for about a third each, while China supplies about 10 percent of the crude oil to Hawaii.

Chevron and Tesoro own Hawaii’s only refineries, both of which are located on Oahu. All of the State’s petroleum is processed at these refineries.

From Oahu the fuel is placed in a barge which travels to Maui and the Big Island before arriving to Molokai. The route is practical in that Kaunakakai’s shallow harbor can only accommodate a less-than-full fuel barge.

Local Distribution

Molokai has just one distribution facility – Island Petroleum. This ‘tank farm’ as it is called, serves as the only storage facility for the entire island. Three types of gasoline – premium, midgrade and regular, as well as two types of diesel – off road and standard – are stored here.

Frank Keoho is manager of Island Petroleum. Among his many tasks, he alone must estimate how much petroleum the island will use before the next barge. And he has to determine this a week and half before the barge arrives.

Keoho aims for one month’s supply each time he orders fuel. He must also keep an 80-day reserve of diesel for Maui Electric Company (MECO) which supplies all of the island’s electricity.

Island Petroleum serves many different clients; some of the fuel is sold at a bulk rate to customers directly. These include small businesses like building contractors, ranches like Pu`u o Hoku, and corporations like Monsanto. The only requirement for wholesale buyers is that they purchase a minimum of 50 gallons.

Then there are the two filling stations on the island – Hayaku Gas and Go and Rawlins’ Chevron. Although Island provides petroleum to both stations, Hayaku is the only retailer that pays Island directly. The purchase price is negotiated between the two companies.

Rawlins’ Chevron, the island’s most frequented gas station, is in its own category. Because it is a Chevron-owned station, the price is negotiated at the corporate level, and is not set by Island Petroleum.

Generally, Rawlins’ Chevron sets the price at the pump and Hayaku follows suit, according to Hayaku station co-owner, Lloyd Inouye.

“We just match them,” says Inouye. “It wouldn’t make sense to engage in a price war. It’s not the Molokai way.”

Why So High?

Why then did the price stay above $4 for so long when Oahu and Maui’s had dipped under $3 a month ago?

For one thing, Molokai is a very small market. Locals use up a fraction of what other islands consume. This is supply and demand economics – fewer consumers means less gas bought and thus the need of filling station owners to charge more to make a profit.

“Volume is a big part of it,” says Keoho. He estimates Molokai consumes less than a hundredth the gas of the Big Island and Maui.

Another factor that accounts for Molokai’s increase is what the price of gas was when the distributor buys it. Island Petroleum will sell their gas at that price until it is gone; new prices kick in with new fuel shipments. With people consuming less, the higher prices will stay around longer.

Despite these explanations, most residents agree the price still seems too high.

Regulation

Carlito Caliboso is Chairman of the Public Utilities Commission (PUC) for Hawaii. After being contacted by the Dispatch, he expressed much interest in gas pricing on Molokai.

But Caliboso says he has trouble monitoring the gas situations on Molokai from Honolulu.

Private companies collect credit card purchases and report the prices to PUC and AAA. The decision to report is up to each filling station. Neither Molokai gas station participates in the credit card collection and thus PUC and others have no way of keeping track of the prices.

Caliboso recognizes the frustration of Molokai residents, but says there are not many options for recourse. The wholesalers/distributors report their prices to the PUC for monitoring, but filling stations do not.

“There are no future plans for this [regulation of retail outlets],” says Caliboso. In the meantime, he says, residents are encouraged to monitor on their own and call or email him if they have questions.

“We would like to keep a closer eye on the situation,” says Caliboso.

A Hurtful Comparison

As of this writing, the average price of a gallon of gas for Hawaii was $2.59 for regular unleaded. Honolulu’s price was about 20 cents less than that and Wailuku was $2.97 even. Costco’s in Honolulu was selling its gas at $2.04.

Molokai was paying $4.29 for most of November. The price dropped to $3.59 on the evening of December 1 and was still there as of this writing.

People say it’s always been a little higher on Molokai, but not as much as recently.

“I always remember it being about 50 cents different from Oahu,” says long time resident Eddie Kawa, “But now it’s nearly 2 dollars more. Something is wrong.”

Many people had similar sentiments.

While it’s understandable that the markdown would lag from the world market (price of a barrel of crude oil), the differences are just too stark, according to Molokai residents.

Many had the same question, “Why does it take so long to fall, yet rise right away?”

Lag Time

“The change will happen when the inventory goes down,” said Keoho. Since less fuel is being consumed, it takes longer for prices to change.

Prices also fluctuate relatively close to the frequency of the barge. The barge comes about once a month, therefore the price of fuel changes about once a month.

While Island Petroleum wouldn’t reveal their retail prices, Keoho did say that his bulk prices were indicative of the recent decrease residents saw at the gas pump.

For the barge that came on November 1, Island’s bulk price was $4.56 a gallon. For the barge that came again on November 29, the bulk price was $3.72 for the 50 gallon minimum.

One huge difference in bulk versus retail prices is taxes. Retail gas is subject to seven different taxes from federal and state agencies. Bulk prices are only subject to three taxes.

Inouye from Hayaku sees the difference personally when he buys fuel for his construction business versus when he is buying it for the filling station.

It Could Be Worse

Visitors to Molokai also notice the high gas prices. But one person was not startled to see gas at $3.59. Steve Moore who was visiting from Vancouver, Canada, actually thought it seemed about right for a small island in Hawaii. “It’s a little bit less than where I am from,” he said.

Just as the saying goes, it’s always worse somewhere else.

As of this writing, prices have fallen just once in the last month. The next change could not come soon enough for Molokai residents.