Economics 2000--Supply of Thieves Rises With Gas Prices

Gold-plated gasoline prices are giving new meaning to the term “highway robbery”: With gas selling at or near record prices, stealing fuel has become a popular crime across the country.

Purloining petrol can be as spur of the moment as driving off without paying or can be the clandestine work of an organized operation raking in hundreds of thousands of dollars while providing suspect fuel to consumers.

Failing to pay for a tank of gas--known as a “drive-off” in industry jargon--has become a serious and expensive problem for some gasoline retailers across the nation.

“Gas drive-offs have gone from two or three a week to two or three a day” at a typical fuel-selling convenience store, said Jeff Lenard, spokesman for the National Assn. of Convenience Stores, whose members sell about 60% of the nation’s gasoline.

Only 8% of the nearly 90,000 fuel-selling stores represented by the trade group require customers to pay before they pump, making the retailers vulnerable to theft. The retailers frequently pass the added cost on to customers.

On a grander scale, stealing regular, diesel and aviation fuel from the U.S. government or failing to pay taxes on fuel have become something of a cottage industry in Southern California, prompting a crackdown. In the last five years, more than 40 people involved in gas-theft rings have been convicted in the Southland.

The latest case involves an Inland Empire gas station owner who was indicted in April for allegedly buying aviation fuel stolen from the Defense Department’s San Pedro fuel depot and selling it to the public as diesel.

Feeding the fuel fraud, particularly by motorists, is the huge run-up in gasoline prices that began earlier this year as oil prices climbed to nine-year highs because of export restrictions by oil-producing nations. Self-serve regular gasoline hit a nationwide average of $1.68 a gallon a week ago--a record, not accounting for inflation--and has topped $2 in parts of the Midwest.

The Organization of Petroleum Exporting Countries agreed Wednesday to pump 708,000 more barrels of oil a day--on top of a 1.7-million-barrel-a-day increase April 1--to keep average oil prices in the neighborhood of $25 per barrel.

Crude oil futures prices have not yet cooperated, with the near-month contract for West Texas intermediate crude, the U.S. benchmark, closing Friday on the New York Mercantile Exchange at $32.25 a barrel.

“We’ve had a huge increase in drive-offs,” said Dennis DeCota, executive director of the California Service Station & Automotive Repair Assn., a Novato-based trade organization with 400 members who operate 750 gas stations, mainly in Northern California. “A lot of guys have had to go to prepay, which the customers hate.”

Gas station owners say the thefts reflect misplaced consumer anger about record fuel prices. The retailers contend that they are not making big profits now, because wholesale prices have risen faster than retail prices.

Drive-offs are less of a problem in urbanized Southern California, where nearly every gasoline station requires customers to pay before they pump, industry officials said. But in some suburban and rural parts of the state and in much of the rest of the country, gas retailers want customers to pump first and then linger in their convenience stores, where they spend more money.

As a result, they are vulnerable to gas thieves.

DeCota knows the problem firsthand. He operates two 76 brand service stations in Marin County and watched gas thefts jump tenfold to $500 a month when California prices peaked in March and April.

He then started requiring customers to pay first.

“The one that made me make the final decision was an RV that came, pumped and didn’t pay. That one cost me $125,” DeCota said.

Now, more customers use credit cards so they can pay at the pump rather than inside the store, and those cards carry a 3% fee per transaction that the retailer must pay, further reducing profits, DeCota said. On top of that, he said, convenience store sales dropped sharply.

When gas was cheaper, thieves usually were young people, Lenard said. Now the convenience store association is hearing of well-heeled thieves in large vehicles, he said. More women are stealing now too, he added.

The crime cost the Arlington, Va., trade group’s members about $234 million last year, before the sudden explosion of thefts began. That totals nearly $2,600 per store per year. Gas theft remains most prevalent in metropolitan areas and along highways, Lenard said.

In California and most other states, stealing gas is usually a misdemeanor that rarely grabs police attention. But some states--Georgia, Florida and Michigan, among them--will hit repeat offenders with hefty fines and license suspensions.

However, gas stealing is a difficult crime to prove, station owners say, and few cases make it to court.

Law enforcement officials have had better luck with larger cases.

Investigators for the Defense Department, the FBI and other federal and state agencies have uncovered a series of gas fraud schemes that have resulted in more than 40 convictions in the last five years in Southern California alone, said M. Davidson Martin, resident agent in charge of the Woodland Hills office of the Defense Department’s Defense Criminal Investigative Service.

In the most recent case, a former gas station owner was indicted April 18 as part of a continuing investigation into theft of fuel from the U.S. military that is being conducted by the Defense Criminal Investigative Service.

Ahmed Dabbas was indicted by a federal grand jury in Los Angeles on five counts of theft of government property and one count of conspiracy. The indictment alleges that Dabbas bought jet fuel that had been stolen from the Defense Energy Supply Center in San Pedro, which serves several military installations and government agencies in Southern California.

Dabbas allegedly blended the stolen jet fuel with lower-grade fuels and sold it as diesel fuel to the public through gas stations in Redlands and San Bernardino. The indictment said Dabbas was able to buy the fuel at extremely low prices and to pocket the federal, state and local taxes on the fuel.

If convicted, Dabbas faces a maximum sentence of 30 years in prison and a $1.25-million fine. Two other men have been convicted for their parts in the theft scheme.

The last five years have brought successful prosecution of several Southern California rings of trucking companies, fuel resellers and gas stations that would sell untaxed jet fuel or other stolen gas through selected service stations as diesel or regular gas, sometimes after blending it with poor-quality waste fuel, court records show. Sometimes high-quality jet fuel destined for government installations was diverted by middlemen, who kept some and mixed the rest with waste fuel before delivering it to the intended customer.

The schemes robbed the government of hundreds of thousands of dollars in tax revenue, gave the dishonest retailers an unfair competitive advantage and provided suspect fuel to consumers and the government, according to court records. Since uncovering those thefts, the U.S. government has tightened its fuel-monitoring programs.