U.P. Fuel Frenzy | What gas prices mean for the U.P.

MARQUETTE — The mere suggestion of high gas prices in the Upper Peninsula arises quite the uproar. But, what does it mean? There is no shortage of news stories about gas prices, whether they’re up or down, who has the lowest, and where you can get the most fuel for your buck. Unlike any other commodity, advertised prices of gasoline are displayed outside every fuel-retailer in the world.

“What are gas prices?” isn’t the question. You can find that answer on virtually every news website out there. GasBuddy.com produces maps, charts and graphics where you can find minute by minute updates on prices. “Why” is far more interesting. Why do gas prices fluctuate? Why is the cost of fuel lower in the Southern part of the Upper Peninsula and more past the Houghton/Hancock bridge? Do gas station owners control prices? Who’s making big profits off of fuel?

Gas stations control the price of gasoline just as much as super markets control the price of cereal.

It’s easy to walk past a marquee at a local gas station and blame the local owner. Is it justified? Is it a correct assumption to blame high prices at the pump on local gas stations? Probably not. Although there are more factors than transportation (see graphic above), the major reason prices differ across the U.P. is because of overhead costs associated with getting the fuel to the location, or keeping it stored. Some places in Houghton can sell it at-cost, causing a patch of low prices because the companies have larger volumes of sales and concentrate on profits from other items. Across the bridge, and close Copper Harbor, that changes drastically.

90% of the gasoline that arrives in the Upper Peninsula comes from Green Bay, WI. Krist, Oasis, Holiday, and Freedom buy branded or unbranded versions of 87, 89, and 91 unleaded fuel from distribution centers in Wisconsin. Before that, refined gasoline is first transported up the Explorer Pipeline into Illinois. Sweet, crude oil, fossil fuels from hydraulically fractured lands in and around North Dakota, and oil overseas or from the Gulf of Mexico — it all comes up from the American Southwest.

It’s partially why you can find unbranded gasoline in Texas for under $2.50 a gallon; travel expenses. The Keystone Pipeline could free up a lot of the burden on gas expenses, but only three phases of the project are in operation, and not reaching the Upper Peninsula. The fourth phase of the Keystone is awaiting U.S. government approval.

The controversy over the Keystone pipeline and its blockage by the Environmental Protection Agency disable Upper Peninsula gas stations from getting oil out of Alberta. Currently we depend on the Explorer Pipeline, which means the original sources of our fossil fuels have to come up through the Gulf of Mexico.

If there’s a hurricane in the Gulf, expect speculators to hike up gas prices. If there’s a short supply of oil from the Gulf of Mexico it’ll be shipped in from China, which first gets its fuel from the Middle East or sometimes even Canada. The fuel that ends up in our vehicles can go from Canada, to China, to the Gulf of Mexico, up into Indiana, through Chicago, into Green Bay and finally to the Upper Peninsula. All of this costs big bucks.

• Across the rest of the country, there are more factors than just transportation. For instance, in Chicago an array of tax levies gets tacked on to gasoline’s retail price, which is added to the price of oil, refining oil into gasoline, distributing and marketing the gas, and selling it at the service station. Therein, you have a pocket of high prices in the Windy City. For the Upper Peninsula, the fluctuations are primarily because of freight costs and location.

If there’s some sort of war or conflict in the Middle East, expect prices to go up. A power outage in Chicago, add $.2 to each gallon. All the pit stops during this road trip, including the government mandated processes to clean the fuel, add another variable of expense. After it arrives in Chicago, it’s sent up the West Shore Pipeline into Green Bay and freighted to the U.P. daily.

Local gas station owners are at the mercy of geographic hardship just as consumers are at the pump, but on a larger scale. Each station utilizes information from computer systems to see today’s price, and adjusts their marquees accordingly. The ‘Oil Price Information Service’ is one system that stations use to determine prices. The price of crude usually changes every day at 6PM, and just as you do when you hear about upcoming lower prices, local stations have to anticipate whether or not they should wait to to buy fuel or purchase it at today’s speculated prices. Only, the amount of fuel can be up to 20,000 gallons a day per station.

Sometimes, if they’re wrong, and buy fuel at, for example, $3.50/gallon, and it drops the next day to $3.45, they may end up purchasing 20,000 gallons of gas for yesterday’s market cost. They still have to compete with other stations that may have anticipated better, or filled up at a more convenient time, but have to sell at a comparable markup from $3.45, losing 5 cents a gallon. The next day, it could be different. At best, it averages out to about 1 cent profit per gallon. It’s always a gamble, the retail fuel business isn’t easy. It’s hard to believe but the profit for gasoline at Michigan fuel centers can often be in the red, some say -1 cent a gallon, some say even less. More often than not, a local gas station will make negative dollars on a gallon.

How is that possible? Think about how gas stations operate. If it were only the fuel that were profitable, you wouldn’t find fuel retailers with groceries, cigarettes, alcohol and beer, there would just be a different pump on every corner, like vending machines. Retailers rely on profit variables across the entire spectrum of your grocery list. Compare it to a movie theater. Profits are made not from the main attraction or the new hit block buster, but from popcorn.

Sometimes, and only sometimes, they can make profits from gasoline. It’s not predictable, and it isn’t easy. Currently, the mark up in Marquette County is around 10%, and for this line of work, that’s a big markup. Any other business model that relied on a 10% market up in their retail products would have a very hard time staying in business.

Each gas station in the Upper Peninsula – a Shell, a B.P, a Citgo, they’re all individually owned. They buy gasoline from distributors, but they can’t really determine its price. Branded gasoline is more expensive, but with it the station can benefit from the marketing awareness of the B.P. logo, or Shell’s advertising to lure buyers. That’s also where you can look to find big profits in fuel; oil tycoons like B.P., Koch, Exxon Mobile, etc.

Places like Admiral in Marquette have very little overhead, so although they can offer fuel at a relatively lower cost than the rest of the county, they still rely on volume and sales from cigarettes, candy, and soda for profits. They cannot pay their employees more than minimum wage, or survive without selling tobacco. Foot traffic and volume is incredibly important to a local retailer like Admiral. It is truly a ‘small’ business.

Price gouging is illegal, regulated, and investigated pretty aggressively. Gas station owners say it’s just not being done. If it were, rouge stations in the same area would just drop prices and beat everyone to the bank.

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