Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: Number of Terminals 2,500 2,000 1,500 1,000 500 Figure 5-8: Petroleum Product Termnials All Terminals Proprietary Terminals Public Terminals 0 1982 Source: U.S. Census Bureau 1987 1992 1997 Between 1982 and 1992, the number of proprietary and public terminals generally declined at a similar pace nationwide – 45 and 48 percent, respectively – although there were regional differences in the rates of decline. 39 Between 1992 and 1997, the number of proprietary terminals continued to decline by 24 percent nationally. During the same time, the number of public terminals increased by 10 percent nationally. 40 Although Bureau of Census data track the number of terminals only through 1997, an informal survey of more recent transactions, from 1998 through 2004, also suggests declining numbers of proprietary terminals and an increasing percentage of all terminals that are public. For example, Colonial Pipeline acquired six terminal facilities from Conoco and Murphy Oil in 1998, 41 Buckeye Partners acquired BP Amoco’s Taylor, Michigan, terminal in 2000, 42 Kinder Morgan purchased five product terminals in the western U.S. from Shell in 2003, 43 and Magellan Midstream Partners purchased six terminals from Shell in 2004. 44 Some branded gasoline firms have taken advantage of certain economies by contracting with public terminal operators rather than running their own terminals. 45 B. Wholesaling. <strong>Gasoline</strong> wholesaling covers all distribution functions from purchase of gasoline and pickup at the terminal rack to delivery at a retail gas station. An integrated refiner may set up a direct distribution system under which it supplies gasoline to: (1) retail sites that it owns and 116 FEDERAL TRADE COMMISSION, JUNE 2005
THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION operates, also known as “company-owned-and-operated stations;” (2) retail outlets that are owned by the refiner but operated by independent lessee dealers; or (3) retail outlets that are owned and operated by independent “open” dealers that sell company-branded product. An integrated refiner’s wholesale price for company-owned-and-operated stations is a non-public, internal transfer price. When an integrated refiner supplies retail outlets owned by the refiner but operated by independent “lessee” dealers, or owned and operated by independent “open” dealers, it charges the “dealer tank wagon” (DTW) price to the dealer. Alternatively, an integrated or independent refiner may use a jobber distribution system. A jobber, which may be brand-name, unbranded, or both, 46 buys gasoline at the terminal rack and then delivers the gasoline to: (1) gas stations that it owns and operates; (2) stations that it owns but leases to third parties; and (3) stations that are independently owned and operated. 47 Jobbers pay a “wholesale rack price” for their gasoline purchases, although other contractual terms may also affect the net price. Essentially, the gasoline distribution system past the terminal boils down to three basic modes of wholesale distribution to retailers: (1) sales to company-owned-and-operated stations at an internal transfer price; (2) sales to exclusively supplied retailers on a DTW basis; and (3) sales at the terminal rack to jobbers at a wholesale rack price, with jobbers then transferring the gasoline to its own stations or selling it to independent retail stations. In 2003, rack sales were about 63 percent of distribution nationwide; DTW and company-owned distribution roughly split the remainder, with 19 percent and 18 percent respectively. 48 The relative importance of each of these three distribution systems, however, differs from region to region across the country. 49 Compared to the nation as a whole, the Midwest (PADD II), the Gulf Coast (PADD III), and the Rocky Mountain states (PADD IV) distribute more wholesale gasoline at the rack through jobbers than through DTW sales or internal transfers. The East Coast (PADD I), like PADDs II through IV, distributes the majority of its wholesale gasoline at the rack through jobbers. Within the East Coast itself, however, DTW sales have greater importance in New England and the Mid-Atlantic states, whereas, rack sales are by far the most important method of distribution in the Southeast states. On the West Coast (PADD V), the percentage of DTW distribution is significantly higher than rack sales. Between 1994 and 2003, DTW sales ranged from 47 percent to 54 percent, while jobbers’ sales ranged from 26 percent to 30 percent. 50 The relatively high degree of integration between wholesale and retail on the West Coast dates back to at least 1994, predating the series of petroleum mergers affecting the West Coast that began in 1997. 51 CHAPTER 5: STATE & LOCAL POLICIES, & VERTICAL INTEGRATION 117
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Federal Trade Commission DEBORAH PL
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GASOLINE PRICE CHANGES: The vast ma
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GASOLINE PRICE CHANGES: $ The World
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GASOLINE PRICE CHANGES: expect incr
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GASOLINE PRICE CHANGES: Figure 3-6:
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GASOLINE PRICE CHANGES: $ Increased
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GASOLINE PRICE CHANGES: $ Since 199
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GASOLINE PRICE CHANGES: increase lo
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GASOLINE PRICE CHANGES: England and
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Table of Contents EXECUTIVE SUMMARY
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C. In 2004, the Geopolitical Outloo
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CHAPTER 4: SUPPLY, DEMAND, AND COMP
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3. Gasoline prices in the East Coas
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CHAPTER 1. SUPPLY (INFLUENCED BY OP
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To obtain the additional supply the
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THE DYNAMIC OF SUPPLY, DEMAND, AND
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Price (Cents per Gallon) 220 200 18
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words, short-run demand for gasolin
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Endnotes THE DYNAMIC OF SUPPLY, DEM
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CHAPTER 2. WORLDWIDE SUPPLY, DEMAND
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Thousand Barrels per Day 18,000 16,
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Million Barrels per Day 0.9 0.8 0.7
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such as ethane, ethylene, and propa
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CHAPTER 3. SUPPLY, DEMAND, AND COMP
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Year-over-year Percentage Change in
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Capacity (Million Barrels per Calen
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Endnotes THE DYNAMIC OF SUPPLY, DEM
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Page 99 and 100: Price Difference (Cents per Gallon)
Page 107 and 108: Millions of Barrels 1,500 1,250 1,0
Page 111 and 112: Millions of Barrels per Day 9 8 7 6
Page 131 and 132: CHAPTER 5. STATE AND LOCAL POLICIES
Page 133 and 134: Percentage of Customers Lost to 1%
Page 135 and 136: Retail Price (cents per gallon) 220
Page 137 and 138: Share (Percent) 80 70 60 50 40 30 2
Page 141 and 142: Price (Cents per Gallon) 200 190 18
Page 143: THE DYNAMIC OF SUPPLY, DEMAND, AND
Page 157 and 158: 6. GAO, supra note 5, at 20. 7. Id.
Page 165: Herfindahl-Hirschman Index (HHI) Th
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