Home Commentary Open forum THERE IS A SOLUTION TO HIGHER GAS PRICES

THERE IS A SOLUTION TO HIGHER GAS PRICES

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Dear Source,
Gas prices on St. Thomas are substantially more than on St. Croix. Gas prices on St. John are higher than on St. Thomas. Many may be baffled. The V.I. government says they need $75,000 to study the problem. By looking closer at the problem, perhaps we can all agree on a solution.
1. Gas is refined on St. Croix. Thus there is very little transportation cost for gas stations on St. Croix compared to St. Thomas, and St. John has the highest transportation cost factor. The barging of gas is an added cost.
2. On St. Croix there are numerous independent gas stations owned by several deferent people competing against each other. Thus the competition keeps the profit margins down. In fact some stations in St. Croix may be selling below cost to attract business in the short-run. On St. Thomas and St. John there are only three players, Esso, Texaco and Domino. Thus the competitive pressures to have lower prices are not nearly as great, thus profit margins can be higher.
3. Real estate cost of the station and thus the operating cost on St. Croix are less than that of a station on St. Thomas or St. John.
4. Typically the gas stations on St. Croix have less expensive equipment than a Texaco or Esso station on St. Thomas and St. John because of the corporate image and overhead of those companies.
5. Insurance costs are higher for a Texaco and Esso than for an independent. On St. Thomas and St. John if an environmental accident occurs the deep pockets of Texaco and Esso assure the damage will be cured. On St. Croix there is no such comfort level. Such a comfort level costs money and is added to the operating cost of a station.
6. The quality of fuel is not an issue. Texaco and Esso will say other wise but the fact is the fuel coming out of Hovensa is perfectly fine for your car without any "proprietor additives" of the majors. Yet Texaco and Esso add cost for their "brand" product.
7. Storage on St. Croix is not a cost factor. Fuel is delivered directly from Hovensa. On St. Thomas and St. John storage costs are incurred by Domino, Texaco and Esso.
8. Volume of business is not a factor relative to the islands but it is a factor when comparing prices between the Virgin Islands and Mainland prices. In the states a station can expect to pump more gallons per month than here due to greater driving distances and more vehicles. The greater volume of gallons pumped at a station allows its owner to charge less per gallon in exchange for pumping more gallons.
9. Taxes are higher in St. Thomas and St. John for two reasons. First there is a distributor in between the Hovensa Refinery and the St. Thomas and St. John gas station, the distributor has to pay Gross receipts on the sale to the gas station (4%) and the gas station has to pay gross receipts on the sale to the consumer (4%). Thus the total tax is of 8%. In St. Croix the gross receipts tax is only paid once (4%). In addition, the gross receipts tax is not per gallon but a percentage of the sale. Thus the higher the sales price the higher the tax. In St. Croix the tax is on a lower priced item and it is only charged once.
These are the factors attributing to the difference in retail gas prices between the islands.
The next issue is how much should the difference be?
Only the market can determine that. You and I as consumers will be a factor. If we consistently drive the extra distance to find the cheapest gas, owners will respond by lowering prices to get your business. But if owners are not punished for higher profit margins they will continue to charge higher prices. Presently Domino on the East End is the lowest priced station.
The second factor is the present scenario of limited competition is going to create more competition. An astute business person is going to open a centrally located, independent gas station, with limited liability exposure, with a direct supply line from Hovensa via tanker trucks on a barge and lower profit margins. Such a low cost, efficient gas station will be rewarded with substantial business.
In a free market economy if the consumer is willing to pay high prices, businesses will charge high prices. Until the consumer becomes more price conscious on St. Thomas and St. John gas prices will remain substantially higher than in St. Croix. Yet if you and I and others would drive to the gas station with the lowest price, gas prices would come down at all stations.
Sincerely
Michael Bornn

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