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Regional gas prices influenced by pipelines

October 1, 2011

By STEVEN NALLEY
citybeat@bellsouth.net

Gasoline industry authorities say locations of pipeline terminals are chief among several factors which influence regional differences in gas prices, including consistently higher prices in Starkville.
MississippiGasPrices.com, a subsidiary of GasBuddy, shows gas prices in Oktibbeha County and the Golden Triangle are often higher than those of several larger cities in Mississippi. On Saturday, for example, prices in both Starkville and West Point ranged from $3.42-$3.49, coming in 17-24 cents above the state average of $3.254.
The same day, Meridian had gas as low as $3.10. Jackson’s outlying community of Byram had it as low as $3.05. The lowest figures for Southaven, Pascagoula and Hattiesburg were at $3.14, $3.04 and $3.02, respectively.
The site features a “Gas Price Heat Map” which assigns colors to areas on a red-green gradient, with red signifying high prices, green signifying low ones, and yellow signifying at or 10 cents below the national average. On a map set to show prices by county, Oktibbeha was the only county in light orange Saturday, among a few yellow ones, many light green ones, and some darker green ones. On June 14, Starkville Daily News reported Oktibbeha was the only county on the site’s map marked with the deepest shade of red, signifying prices more than 40 cents above the national average.
The Mississippi Petroleum Marketers and Convenience Stores Association, a board of business leaders in Mississippi’s gasoline industry, has a website detailing how gas journeys from refineries to retailers at http://www.mpmcsa.com/who_primer.cfm. The MPMCSA site says distribution, marketing and retail dealer costs and profits all together account for 14 percent of the pump price of gasoline.
This distribution usually starts with gas traveling by pipeline from a refinery to a terminal. Distribution companies, known in the industry as “jobbers,” then deliver the gas to retailers by truck.
Ben Blair, currently a professor of business and finance at Columbus State University in Columbus, Ga., previously conducted research on gasoline macroeconomics as a professor at Mississippi State University. He said refineries, terminals, jobbers and retailers each apply mark-ups to the price, but the jobbers are likeliest to cause disparities in regional prices, because they may have to deliver gasoline to a town far away from any pipeline terminal.
“It has to do with the distance, because they have to pay the transportation costs,” Blair said. “Some of the retailers in Mississippi are out in the boondocks.”
Blair said there are eight terminals which serve Mississippi, one of which is in Memphis, Tenn. and two of which are on the Mississippi gulf coast. The others, he said, are in Vicksburg, Greenville, Meridian, Collins, and Aberdeen.
These terminal locations help explain low prices in certain cities, Blair said. For instance, Meridian benefits from a terminal of its own, and Southaven benefits from the Memphis terminal.
However, other complicating factors exist, Blair said. For instance, he said, when retailers buy gasoline, they fill their underground tank at a set price, and they must either sell the gas at that price until it runs out or face significant profit loss.
“The smaller stations in rural areas don’t go through their gasoline as quickly as an urban retailer would,” Blair said, “which prevents them from adjusting the gas prices as quickly.”
For example, Collins, despite having a refinery of its own, showed gas prices at $3.36 Saturday on http://www.MississippiGasPrices.com.
Conversely, Phillip Chamblee, executive director of the MPMCSA, said some metropolitan areas may have higher rent for businesses, leading retailers to charge more. He also said the size and method of delivery to terminals makes a difference.
The Aberdeen terminal, for instance, only has four storage tanks to Meridian’s seven, and Chamblee said its supplies are brought in on the Tennessee-Tombigbee waterway. That’s a key reason Starkville and the Golden Triangle don’t necessarily see lower prices like other population centers near terminals, he said, and there are no other terminals as close by as Aberdeen’s.
“Since they’re on the river and it’s transported by barge (instead of pipeline,) there’s going to be transportation costs coming from that,” Chamblee said. “(Collins and Meridian) are both on a pipeline, so there’s a lot more product there.”
Chamblee and other MPMCSA board members are currently attending the National Association of Convenience Stores Show in Chicago, Ill. Jeff Lenard, spokesperson for NACS, said other factors which could play a role in regional pricing include local taxes, smog regulations, and competition among stations. The smallest factor in the equation, Lenard said, is the individual retailer.
“The average mark up of a gallon of gas in the course of a year is 16 cents per gallon,” Lenard said. “The most retailers usually see out of that is 2 cents per gallon.”

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