Oil-rich Kern pays through hose Filed: 04/09/2000

By CHIP POWER Californian staff writer ppower@bakersfield.com

With crude oil so plentiful in Kern County, why are retail gas prices in Bakersfield among the highest in the state?

You might think that local consumers would benefit from living next to an industry that produces about 10 percent of the nation's crude oil supply in their back yard.

But no.

Bakersfield was recently rated as the third most expensive place to buy gasoline in the United States, trailing leader San Francisco and runner-up Reno, Nev.

There isn't anything new about Bakersfield's high ranking, though the cities that earn the unenviable distinction of being home to the most expensive fill-ups do move around.

In fact, some people talk about the high gas prices in a fatalistic manner, almost if they were describing decades of air pollution that are accepted as part of life in the southern part of the San Joaquin Valley.

Even the state's leading consumer lawyer, Attorney General Bill Lockyer, notes that high pump prices in secondary markets such as Bakersfield have become a fact of life.

"The oil companies charge more there because they can. That's the simple answer," said Lockyer, who has been sharply critical of oil company mergers and their effect on prices in the state. "They can get away with it because there isn't enough competition in the state."

He added: "Occasionally, there are regional differences because smaller areas may sell lower volumes of gasoline, whereas the cost in larger areas such as Los Angeles can be less because they are selling larger volumes."

Prices have been on a tear, though a new report from the federal Department of Energy said the worst may be over  barring any unforeseen events such as refinery mishaps.

Southern California gasoline prices climbed more than 27 cents a gallon in one month, shooting past the April 1999 high of $1.61, according to an Automobile Club of Southern California report. The March average per-gallon price of regular self-serve unleaded was $1.701 compared with $1.429 on Feb. 15. The rate of increase has moderated in April, and the Energy Department predicts prices will fall by September.

The "lowest" of the high gas prices in Southern California, the group said, was in Alhambra, where the average price is $1.605. Bakersfield weighed in at $1.770, near the top, and Ridgecrest was at $1.852. By comparison, the national average was $1.53 per gallon, AAA said.

Kern County has the stamp of oil all over it, from the Shell- and Texaco-affiliated refinery to massive pumping operations overseen by Chevron, Texaco and Occidental Petroleum. The Chamber of Commerce is quick to point out that there is more oil produced in the county per day  roughly 560,000 barrels  than the whole state of Oklahoma musters.

One oil company executive said that even though the county is almost soaking in oil, the dynamics of world petroleum production and demand have more of an impact on local pump prices than the industry's local presence.

"California only produces half of the oil it needs," said Larry Morton, president of Stocker Resources, a crude oil production company. "So even though we have a lot of it in the state, the oil sold in Bakersfield could just as easily have come from Saudi Arabia that was imported to Los Angeles."

The state energy commission attempts to explain the disparity between big market and small market prices this way:

"The main market factor affecting prices is competition. In (Los Angeles), there are many more vehicles and more gasoline stations to serve those cars and trucks. So, with more stations, there is more competition."

But there are exceptions to the general rules.

Gasoline in San Francisco is often the most expensive in the state. One reason could be the extraordinary high prices of developing new gas stations and convenience stores in the city, given its expensive real estate values, said Fred Gorell, a spokesman for Chevron. The hills don't help development, either.

Los Angeles nearly always has lower prices than Bakersfield, said Gorell, notably because it is the largest gasoline market in the world. Gorell said that three factors  supply, demand and competition  result in what local gasoline prices may be. "Our market is value," said Gorell, who said Chevron's products may be priced somewhat higher than competitors. "People will say that all gasoline is the same. We say that it is not."

Gas companies may use a "zone pricing" system where wholesale prices, and thus retail prices, are adjusted according to what the market will bear, said Gorell. He said he was unaware that Bakersfield often runs near the top of the list of highest-cost gas cities in California.

But he said that the company uses its different zones for pricing to reflect what levels free market conditions can sustain.

Lockyer, the attorney general, said the flaw in that argument is that free market principles are not working due to consolidations in the oil business, leaving fewer individual companies producing and selling gasoline. However, Lockyer critics note that he hasn't had enough evidence of market manipulation to seek charges.

Don Jeffries, owner of Jeffries Bros. Petroleum in Kern, an independent wholesaler and retailer, compared the recent run-up in pump prices to a Wall Street rally that jumps and then moderates. Jeffries, who is his family's third generation in the oil business, said that price increases in the state are often aggravated by the state's geographic position.

Though it doesn't look like one on the map, California is really an island, said Jeffries, where mandated clean air provisions require specially formulated gas and where mountains effectively block gasoline pipelines coming from the East.

And whether you live in Bakersfield or anywhere else, he hinted, low prices to fill up the gas tank are not an entitlement.

"We were 60 cents cheaper last year, but gasoline is still a good deal, if you look at the averages," said Jeffries, who owns four retail sites locally which sell Exxon products.

"I'm surprised that gas isn't $5 a gallon," he said, suggesting that tougher environmental regulations in the future could make such a sum a reality.

http://www.bakersfield.com/top/i--1256890919.asp

-- Martin Thompson (mthom1927@aol.com), April 10, 2000

Answers

This same paradox holds true for Nigeria, where poachers steal from pipelines, and street vendors sell fuel at makeshift roadside stands. For Azerbajain, where oil is so plentiful it bubbles from the ground without drilling. For Mexico where gasoline is now over $2 a gallon at the pump? And, how aboout Canada? They are net exporters of oil, yet their truck drivers have been blocking highways in protest over the high price of diesel.

Go figure. Apparently closeness to supply source means less than nothing.

-- Uncle Fred (dogboy45@bigfoot.com), April 10, 2000.

I believe the same holds true for Colombia and Ecuador. Both are also net exporters of oil, yet their infrastructures are falling apart. And, Venezuela is highly suspect.

-- Wellesley (wellesey@freeport.com), April 10, 2000.