Alon CEO: Consumers Can Lower Gas Prices

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Alon CEO: Consumers Can Lower Gas Prices

DALLAS -- Even before Alon USA's CEO, Jeff Morris, walked into the Petroleum Club's ballroom to address the Permian Basin Petroleum Association members, he was asked twice about the future prices of gasoline.

"In 2004, when prices hit $2, I thought people would quit buying gas. I was wrong. In 2005, when prices hit $2.50, I thought people would quit buying gas. I was wrong. When prices hit $3 this year, I thought people would quit buying gas. I was wrong," he said during his speech at the association, the Midland Reporter-Telegram reported.

Although his predictions in the past may have been incorrect, the chief executive did offer some insight into what could affect gas prices in the future. "The public always thinks gasoline prices are too high but they forget that they have more control over prices than they think. If people would drive 14,850 miles a year instead of 15,000 miles a year, gasoline would be $1.50 a gallon and oil $25 a barrel."

Morris noted that consumer demand -- which has rose 1.1 percent this year despite the high prices -- has exceeded refinery capacity growth -- which has averaged 1 percent annually over the last two decades -- to the point where the U.S. imports 18 percent of the gasoline it consumes. According to Morris, the country would need 16 new refineries to meet the capacity demand.

Demand is what drove prices past $3 a gallon, according to Morris. "I don't know what the price is where demand will decline; this is staggering to me," he told association members. "We're gong through the first demand-driven cycle in 50 years and so we don't know the point where people will use less."

In addition, Morris gave advice to stores. He estimated that with more than 80 percent of the convenience industry being independent businesses that see at least 50 percent of profit come from the sale of coffee, cold drinks and beverages such as 7-Eleven's Slurpee, only 5 percent or less of profits come from gasoline.

"The Town & Country stores are locally owned out of San Angelo; Bill Kent here in Midland, Skinny's out of Abilene; these are independent business people and they reach their business decisions independently," he said. "Some choose to compete with Wal-Mart and keep their prices lower. Some choose to make some money and keep their prices higher."

"So if you're in a store, don't worry about buying gas, buy some coffee instead," he added.

Morris also hinted at his strategies for Alon over the next years. Among them are plans for a $12 million travel center in Midland, Texas, an 8 percent expansion of the Big Spring refinery by 2008, the upgrade of all its convenience stores over the next three years and the production of 100 percent clean gas by 2010.

Alon USA owns the Big Spring refinery through which it independently refines and markets petroleum products. The fuel is marketed under the FINA name and is distributed to retailers, including its 200 7-Eleven and FINA stores in West Texas and New Mexico.