Study of the Components of Delivered Fuel Costs in Alaska: January 2009 Update

Abstract

This is an update of our previous report titled “Components of Delivered Fuel Prices in Alaska.”1 We provide more recent data on actual fuel prices in ten rural communities that we first examined in fall 2007. Rural communities across Alaska face extremely high fuel prices. People in these remote, cold places need large quantities of fuel for heat, electricity, and transportation. The estimated household cost for energy use in remote rural Alaska has increased significantly since 2000—increasing from approximately 16% of total household income to 47% in 2008 for the lowest income households. It is a higher portion of income for all income levels in remote rural Alaska as compared to Anchorage.2 In addition to the high price of fuel in rural Alaska, villages and communities have high unemployment rates, limited local economic bases, and local governments that are struggling to provide basic services to residents and businesses.3 A 2008 report done by the Alaska Division of Community Advocacy stated that the price of gasoline in 100 Alaska communities ranged from $2.75 (Fairbanks) to $9.00 (Arctic Village) per gallon with a mean of $5.80.4 In many areas of Alaska, transporting bulk fuel by air, barge, truck or a combination of these methods increases the price of fuel, most of which must be purchased prior to “freeze up” in cold winter months in order to allow time for delivery to remote villages. High remote rural fuel prices appear to be the result of a number of factors. These include high transportation costs to remote locations, limited and costly storage, small market size, and the financing costs associated with holding large inventories. The main purpose of this research is to identify the components of the cost of delivered fuel across rural Alaska. By understanding these cost components, it may be possible to identify opportunities to address them and reduce the overall cost of fuel.