Why gas prices don't drop faster

Letter to the editor

Posted: Thursday, December 01, 2005

I'd like to take a crack at answering Chris Watson's excellent question (from Nov. 30) of why Juneau isn't seeing gas prices drop as quickly as the rest of the country.

The transportation costs of getting gas (or anything) to Juneau are very high. We all know that. So Delta Western (or whomever supplies the gasoline around here) is going to buy in larger quantities to minimize their shipping costs per gallon.

This means our supply isn't going to be very fluid. Juneau buys a lot of gas when it needs it at price $X.XX and doesn't reorder until it needs to. Down south they have a much shorter inventory time. So if you're a gasoline wholesaler from down south, you'll turn around that $3.00/gallon gas faster than a Juneau gasoline wholesaler. All your competitors will too. Soon you'll be able to sell it cheaper to gas stations and still make a profit because you're into your new stock of "cheaper" gas.

I'd guess that we're still trying to burn off that pricey gas that was purchased shortly after Katrina. As we work through that stockpile, the price should fall. That's how I see the process working in theory. Whether there's enough gas wholesalers to create the competition necessary to trigger that reduction in price (here in Juneau) is a whole other question.

Andy Wink


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