Gas Price Hikes Seen Continuing : Disruption of Alaska Crude Brings Risk of West Coast Fuel Shortages

Gasoline prices in Southern California pushed higher again Friday in the aftermath of the Alaskan oil spill, as the risk grew that restrictions on oil tanker shipments to the West Coast will lead to shortages.

The increase in prices led one congressman to urge the Energy Department to draw up plans for tapping the U.S. Strategic Petroleum Reserve in hopes of easing the anxiety that has gripped markets in recent days.

“As we learned in the oil crises of the 1970s, the psychological response to a relatively small supply interruption can lead to large price increases and economic harm,” said Rep. Philip R. Sharp (D-Ind.), chairman of the House subcommittee on energy and power.

Energy Department officials responded that they do not foresee a serious disruption of oil supplies. But the mere suggestion of using the strategic reserve underscored the confusion and anxiety that have engulfed the markets for oil and gasoline since the March 24 incident in Alaska.

Pump Prices Up 10 Cents

At some Southern California service stations, prices at the pump rose more than 10 cents a gallon, and operators warned that the increases were likely to continue this weekend.

Since the tanker accident, consumer prices have risen more than 20 cents a gallon, in many cases, and have jumped even higher at the wholesale level, raising the specter that the price spiral is not over.

“It’s going to be a chain reaction,” warned Ron Appel, owner of United Oil Co., which operates 26 service stations in the Los Angeles area.

At Valdez, Alaska, meanwhile, freighter traffic remained at a crawl Friday. Only five tankers have left the port since the spill, delaying delivery of 12 million barrels of crude oil, according to Atlantic Richfield.

Under strict Coast Guard rules imposed since the spill, tankers must stay 500 yards from oil slicks and 1,000 yards from the crippled tanker, work only in daylight, have two tugs escort each vessel in and out and have a pilot aboard at all times.

Increasingly frustrated, the major Alaskan oil producers--Arco, Exxon Corp. and British Petroleum Co.--Friday described the situation as “urgent” and pleaded with government officials to allow more tankers out of Alaska.

“We share the Coast Guard’s concern for a safe and conservative operation of the port,” said Arco Chairman Lodwrick M. Cook, “but reasonable action is needed now.”

Coast Guard officials reiterated late in the day that oil deliveries would be delayed until at least sometime next week. But Arco executives held out hope that some restrictions will be lifted as early as Sunday.

Energy Industry Divided

There is broad disagreement on the role of the Alaskan spill in the price rises, which have caught politicians and members of the public by surprise and deeply divided the energy industry.

In an atmosphere of rumor and even panic, refineries and gasoline dealers fear being cut off from supplies. Already, British Petroleum and Exxon have notified customers that only 80% of orders are likely to be filled on the West Coast in April.

Energy experts said the situation is ready-made for hoarding and stampedes by motorists to top off their gasoline tanks, creating an unnecessary shortage. Similar panic buying was blamed for gasoline lines in the 1970s.

In a letter to Energy Secretary James D. Watkins, Sharp said: “No one is eager for the government to attempt to control prices or allocate supplies. We learned our lesson in the 1970s. The sudden loss of 60% of our Alaskan oil, however, is not a normal situation.”

Energy Department officials are unconvinced, however. “Our information is that there is not now and not going to be a significant enough disruption to warrant a (Strategic Petroleum Reserve) drawdown,” an Energy Department spokesman responded.

The biggest cost increases have been imposed on independent gasoline dealers, and some of them are lashing out at the big energy corporations they rely on for fuel. Since mid-week, Southern California independents have faced wholesale gasoline price hikes in the range of 20 cents a gallon.

“Usually the increases are a penny or two pennies--it’s never happened like this,” said Grace Lazar, vice president of California Target Enterprises Inc., which operates more than 100 self-service gasoline stations in Southern California.

“Not only are (big energy companies) taking advantage of the public, but they’re squeezing the independent dealers like us,” she said.

According to Stephen R. Shelton, executive director of the Southern California Service Station Assn., Chevron Corp. and Shell Oil Co. hiked wholesale prices 3 cents a gallon on Friday.

Profiteering Charged

“I know they’re raising prices rapidly in other cities,” he said of major oil corporations, “so it does appear they’re profiteering from this accident they caused. There shouldn’t be any economic incentive for people to crash boats.”

Even though gasoline dealers might be forced to pay prices they do not think are justified, “they would rather have expensive gasoline than no gasoline at all,” said William Floyd, executive vice president for marketing at Tosco Corp., an independent refiner.

The West Coast relies on Alaska for 40% to 50% of its oil, and oil prices rise and fall in response to supply and demand. The prospect of shortages has triggered searches for other sources of oil, including from the U.S. Gulf Coast and Mexico, and placed a premium on the oil already on hand. The competition for crude has been driving wholesale and spot prices up sharply.

Since the accident, not a single Arco tanker has arrived at Long Beach to deliver oil to the firm’s Carson refinery, which relies entirely on oil from Alaska’s North Slope. The 230,000-barrel-a-day refinery normally gets two to three tanker shipments a week.

Although refusing to disclose the increases in the prices Arco charges dealers, Albert Greenstein, an Arco spokesman, said: “Our prices are in line with other companies’. We don’t lead the price; we try to remain competitive.” Dealers generally confirmed this.

Anticipating shortages, Arco has announced a 35% cutback in production at its Cherry Point, Wash., refinery but continues to produce at capacity in Carson.

The West Coast refineries that burn Alaskan crude oil cannot readily switch to crudes with different physical properties, so Arco and the other companies must look for “look-alike crudes” to replace any shortage.

An Arco spokesman said it has not declared force majeure, as Exxon and BP have, signaling their expected inability to meet the needs of their customers in April. Force majeure is a legal mechanism a supplier can use to escape terms of a contract due to circumstances beyond its control.

But Arco, which has fewer customers, said it has told them that deliveries will be “late.”

There remained some confusion as to how much of the increase in oil prices should be attributed to the Alaskan spill.

25-Day Supply of Oil

California is estimated to have 20 to 25 days of extra oil on hand, according to the California Energy Commission in Sacramento. This includes oil that was en route before the spill, inventories at refineries and oil already processed.

“We don’t see any direct correlation of the price increases with the Alaska situation,” said Angela Blanchette, a spokeswoman for the commission.

Appel, the independent operator, agreed: “Are the refiners sitting on it? Are the majors buying it all up? Nobody knows. We can’t pin it all on the oil spill.”

In response, refiners have cited various causes of the price surge that are unrelated to the oil spill, including equipment failures, seasonal shifts in supply and new environmental regulations.

A steady rise in world crude oil prices began in November, resulting from cutbacks by the Organization of Petroleum Exporting Countries and by surprisingly strong demand for oil in the United States and the Far East. California demand for gasoline has been especially high, and retail prices have outpaced those elsewhere in the country.

Refiners have also blamed changes in environmental regulations that they say make it slightly more expensive to process a barrel of crude. This has led to especially short supplies of diesel fuel, which has jumped sharply in price since the first of the year.

A barrel of crude costs about 50% more than it did in early November.

And price increases have been dramatic since the oil spill.

At a Burbank independent gasoline station owned by Appel, the price for unleaded regular stood at 89.9 cents on the day of the spill. Since then, it has soared to $1.169; Friday’s jump alone was 14 cents, with a further 7-cent increase scheduled to take effect today.

Lou Bacca, proprietor of the Lou Bacca Chevron station in Santa Ana, said the price he pays for gasoline rose 18 cents a gallon between Jan. 20 and March 23. Since the spill, it has jumped an additional 6 cents.

Lifeblood of West Coast

Added to these other forces, “North Slope crude is basically the lifeblood crude supply of the West Coast refiners,” said Frank Sisti, president of Ultramar Refining, a major independent refiner based in Long Beach.

Although the longer-term energy outlook appears stable because of underlying surpluses of oil around the world, some observers warned that marketplace jitters could further disrupt things if they got out of hand.

Edwin S. Rothschild, assistant director of the consumer-oriented Citizen/Labor Energy Coalition in Washington, warned that fears of shortages could prove self-fulfilling if motorists stampeded to gasoline stations and refiners held back fuel in speculation that prices would spiral higher.

Sharp said in his letter to Watkins that simply announcing preparations for drawing oil from the Strategic Petroleum Reserve “should take the edge off the speculation in oil prices” and would “send a useful signal that the government will not allow speculators or panic buyers to drive prices up.”

The Strategic Petroleum Reserve, created in the 1970s as a hedge against future interruptions of oil supplies, consists of about 560 million barrels of crude oil stored in several underground salt caverns in Louisiana and Texas.

Only the President can tap the reserve after declaring an energy emergency, but the definition of what would constitute such an emergency has never been clear.

The Energy Department has elaborate plans for a free-market auction of Strategic Petroleum Reserve oil to the highest bidders in an emergency.