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South Regional Report

By Hank Behar

At 2:15 p.m. Aug. 16, a fire broke out at Chevron's refinery in Pascagoula, Miss., the company's largest U.S. refinery and one of the 10 biggest in the country. There were no injuries, and by evening, the fire was contained, though still burning.

At the same time, tropical storm Dean was building strength in the Caribbean, threatening to develop into a hurricane of unknown proportions.

Neither event had any effect on the supply of gasoline to the markets served by the Mississippi Association of Convenience Stores (MACSA), yet the very next day, Aug. 17, fuel prices in the region spiked between 5 and 9 cents a gallon.

The storm never hit Mississippi, but it took seven days for prices to start coming down to their pre-fire and pre-Dean levels. It was, in other words, a graphic study of an unreal situation: The supply of gasoline was not interrupted, yet the market jumped.

"That kind of thing is unpredictable," observed Jerry Wilkerson, MACSA executive director, "so we shouldn't be surprised when it happens. Prices eventually do settle down. What I'm more concerned with is the effect of speculative trading on the marketplace. That's more pervasive and ongoing. When traders in New York and Chicago bet on oil futures, gasoline prices can skyrocket without any relation to supply and demand. That's really unreal. What we need is some kind of oversight by the federal government to keep those activities from going too far. Hurricanes come and go, but betting on oil futures goes on all the time -- unchecked."

The lessons of Hurricane Katrina have not been lost on Texas. When Hurricane Dean threatened, Texas immediately mobilized its rescue forces for a massive evacuation effort along the coast and the Rio Grande Valley. One of the essential ingredients in the master plan was fuel.

"We had 2,000 school buses and 1,100 commercial coaches on standby," said Scott Fisher, vice president of policy and public affairs for the Texas Petroleum Marketers and Convenience Store Association (TPCA), and a member of the Governor's fuel team. "The school buses were forecast to get only two miles to the gallon, so the state's evacuation plan called for fueling stations to be set up every 100 miles. Gas stations along the Rio Grande Valley also received more than 100,000 barrels of gasoline to boost their supplies, and to round out the preparations, medical and sanitary facilities were set up along the evacuation routes.

"Fortunately, we didn't have to use any of it, but it was a great dry run. There are 1.1 million people in the Rio Grande Valley who will need help in the case of a hurricane hit, and 130,000 who have special needs, so it was a useful exercise for all of us. We're ready now for the next storm that comes our way."

Good news for Louisiana's petroleum marketers: Thanks in part to the efforts of the Louisiana Oil Marketers and Convenience Store Association (LOMCSA), the state legislature has limited the occupational license tax levied on retailers, which is a percentage of annual retail sales.

"With the price of gasoline rising, the occupational tax was threatening to become too great a burden for our retailers to bear, so we fought to have gasoline sales excluded from the definition of gross sales, and we were successful. As a result, retailers throughout the state will be saving up to $6,000 a year," a LOMCSA representative explained.

In the meantime, Louisiana took its first step forward in the national effort to reduce dependency on foreign oil with the opening of the state's first E85 fueling station. Located in the town of Sulphur in southwest Louisiana, the station is a partnership between CleanFUEL Distribution and a joint venture between CleanFUEL USA and Protec Fuel Management, and Pumpelly Oil.

Louisiana thus becomes the 42nd state with an E85 facility. States still without one -- so far -- are Arkansas, Connecticut, Hawaii, Maine, Oklahoma, New York, New Jersey and and Vermont.

Some E85 factoids -- Made up of 85-percent ethanol and 15-percent gasoline, ethanol is produced from renewable sources, such as corn; burns cleaner than 100 percent gasoline, but yields fewer miles per gallon. E85 is designed to run in flexible fuel or FlexFuel vehicles only.

Tobacco Talk

Legislators, take notice: A boost in cigarette taxes may seem like an easy way to raise revenue, but it may actually be a zero sum game -- or worse -- when all the consequences are factored in, so says Marylee A. Booth, executive director of the Tennessee Oil Marketers Association.

Booth offered up the following example:

"We knew we were going to get hit with an increase in cigarette taxes," she said, "and we were prepared to see our border stores lose a certain amount of customers to neighboring states with lower taxes. We expected a boost of about 20 cents, raising Tennessee's tax to 40 cents a pack. But when the legislature, in its wisdom, decided to raise the tax to 62 cents a pack we really got hurt. We have eight states on our borders; that's a lot of places for shoppers to go to, and though we don't have all the numbers yet, we estimate that Kentucky, Georgia and Mississippi have benefited most from our new tax."

Cigarettes are the No. 1 item in most stores, noted Booth, so while "there may be dollars coming in from the tax, they're stained with the losses borne by Tennessee's border retailers who have seen their profits drop. Lower profits means lower tax revenues, so, when all is said and done, the boost may not have been such a wise move for the state's finances after all," she said.