What drives fuel prices in Nome?

Nomeites were in for a rude awakening earlier this month when Crowley Fuels unexplainedly raised prices at their pumps. A change in gas prices outside of the barge season is so rare that even a staff member working the phones in their Anchorage office expressed shock when hearing about it. However, as soon as this reporter asked them for more details for the paper, the worker said they weren’t authorized to speak to the press. A statement sent from the corporate headquarters in Jacksonville, Florida cited “economic forces and COVID-19,” but the company refused to elaborate. A polite Crowley worker in Nome said they were told to direct people to a number with a Virginia area code, but apologetically, couldn’t say anything about the communications they had received or how many inquiries they received about the price increase. Phone calls to the Virginia number had not been returned by press time.

So ,what sets the costs of fuel? Contrary to popular belief, the President of the United States has very little control over gas prices. The cost of crude oil is generally only around half of the cost that a consumer pays, explained Larry Persily, former Federal Coordinator of the Alaska Natural Gas Transportation Projects. As of February 2022, according to the U.S. Energy Information Administration, an independent government statistics agency, 61 percent of what a consumer pays is the cost of crude oil, 14 percent is the cost of refining, 14 percent are taxes and 11 percent are the cost of marketing and distribution. Crude oil, like any commodity, is traded in markets, which means that there is a great deal of speculation based on what companies think they can sell it for. Following Russian’s invasion of Ukraine, Russian oil became an unpopular commodity, allowing those selling non-Russian oil to think they can sell for higher prices. But drilling for more oil in Alaska isn’t the easy answer to Nome’s problems, because Alaskan oil is usually exported, and Nome fuel is usually imported from Asia.

Oil producers sell crude to refineries, which is then sold to a broker or supplier and then a consumer. Along the way, there are transport methods such as pipelines and tankers, which all have a cost.

Scot Henderson, CEO of Bonanza Fuel, a Sitnasuak Native Corp. subsidiary, explained that the price set for fuel depends on a number of things. The cost of the fuel is a big part of that, but there are other costs: capital and infrastructure maintenance such as the tank farms or delivery trucks, employee salaries, taxes and transportation. Historically, he said, the price that the Nome consumer sees only changes once or twice a year, when the fuel is delivered. This means that those in Nome are less used to the volatility of oil prices, unlike Anchorage or the Lower 48, which gets deliveries year-round.

“Bonanza’s goal is to keep fuel prices as affordable for as long as we can. We have not adjusted our prices,” Henderson said. “We do not anticipate raising fuel prices.”

Another factor, Henderson said, was that at the start of the pandemic, Bonanza was able to make some smart purchases and stocked up on jet fuel that was going unused because of the drop in air travel. Jet fuel and heating fuel are the same thing filtered differently, and so anything that wasn’t going into jets was now going to heat houses.

In 2021, Crowley Maritime was the 28th largest privately held company in Florida, ranked by revenue. Being privately held, Crowley has much more control over how they operate and what they do with their over $2 billion of revenue than anyone at Bonanza might, which has to keep shareholders and customers happy. At the other end of the spectrum is Nome Joint Utility, whose primary goal is not to turn a profit, but to operate reliably and provide services to residents. NJUS Assistant Manager Ken Morton said in a March 28 Nome Common Council meeting that they had received an offer for fuel which was substantially higher than they’d seen in the past and thus had no interest in purchasing fuel now.

Nome can only get fuel deliveries during barge season. Changing prices on stored fuel delivered the previous year is therefore unusual. There are legitimate reasons, Persily said, such as contractual reasons or loans, but it is hard to know without explanation. A number of experts speculated that it could be an incremental increase in anticipation of further price increases in the future.