Japanese discount keeps gas prices lower
May 31, 2007
Pacific edition, Thursday, May 31, 2007
The good news is it could be worse.
The bad news is it could be better.
As stateside fuel prices hover at near-record levels, motorists at U.S. military bases in Japan and Okinawa are getting a price break.
At most of its locations, both in the States and overseas, the Army and Air Force Exchange Service bases its gas prices on the most recent weekly average from the U.S. Department of Energy plus the incremental costs associated with providing motor fuel.
That figure can vary widely by country.
Overseas, those dispensing costs include personnel; supplies — everything from paper towels to receipt paper; currency conversion; depreciation; “drive offs”; banking and credit card transaction fees; forms and manuals; and data processing, AAFES spokesman Judd Anstey said in an e-mail to Stars and Stripes.
In mainland Japan and Okinawa, it costs AAFES about 6.85 cents per gallon to distribute fuel, according to Anstey.
Now, plug in the AAFES pricing formula: Apply the latest Energy Department average for midgrade gas — $3.30 for the week of May 21 — plus dispensing costs, and mainland Japan and Okinawa motorists could be paying $3.37 a gallon this week.
Instead, a gallon of midgrade retails for $3.127 thanks to a 25-cent-per-gallon discount from Japanese government funds, an offset that’s been in place for some time.
No such discount applies to fuel in South Korea and Guam, where unleaded fuel costs nearly 16 cents a gallon more than Japan’s midgrade fuel. Only midgrade and diesel fuel are available for retail sale at military bases in mainland Japan and Okinawa.
At its filling stations in Japan and Guam, the Navy Exchange Command also sets its prices weekly, following AAFES’ lead.
“We have an agreement with AAFES to price equal to them,” Larry Boone, NEXCOM automotive program manager, stated in an e-mail.
It’s not known when NEXCOM began matching AAFES fuel prices and policy in the Pacific. Boone told Stripes in February 2005 that NEXCOM at the time hadn’t opted for a monthly, market-based sale price in Japan because its costs were “generally not reflective of U.S. cost prices, taxes considered.”
Included in stateside market costs are state and federal taxes, which AAFES and NEXCOM do not pay in most overseas outlets. There is a tax on Guam because it’s a U.S. territory.
The market-based pricing policy currently means Pacific customers are paying a lot more than it costs AAFES and NEXCOM to purchase and provide fuel.
Both government organizations buy fuel from the Defense Energy Support Center. The current standard price for midgrade fuel is $2.21 per gallon, according to the DESC Web site.
“These are annual contracts, however DESC has adjusted prices as needed to accommodate for market swings during the past few years,” Anstey wrote. “The latest change in Standard Prices occurred 1 April 2007.”
Add the current wholesale cost with the average 7-cent per gallon dispensing cost in mainland Japan and Okinawa, and the difference this week is 84 cents per gallon above the DESC price.
In South Korea and Guam, wholesale costs fluctuate monthly, Anstey wrote. The current average wholesale cost for South Korea regular unleaded is $1.855 per gallon, and for Guam, $2.443 per gallon, he said. Current incremental dispensing costs in South Korea are about 6.73 cents per gallon and about 6.16 cents per gallon on Guam.
Customers this week are paying $3.285 in South Korea and $3.279 on Guam for a gallon of unleaded.
AAFES’ market-based pricing plan is intended “to deliver prices that are consistent with those found in the United States,” Anstey wrote, noting that “market-based policies do not consider dynamic ‘costs’ when determining prices.”
AAFES adopted the market-based pricing policy in 2004 to keep fuel prices overseas consistent across the board. Prior to that, gas prices were locked in for each year in several countries, including Japan, with AAFES officials explaining then that customers in those places did not benefit from downswings in the market.
AAFES initially adjusted fuel prices once a month based on market trends, but earlier this year AAFES switched to a weekly fuel policy to more immediately reflect stateside prices.
“The Department of Energy average is a third-party market price barometer of the price Americans are paying for gasoline,” Anstey said. “Using this benchmark ensures that troops find pump prices that are reflective of the U.S. average.”
In the Pacific, Marine Corps Air Station Iwakuni is the only base that doesn’t adjust fuel prices according to stateside market trends.
For the last several years, Marine Corps Community Services has maintained a minimum 35-cent-per-gallon profit on fuel sales — a policy that can be both a boon and bane to customers. Last week, a gallon of midgrade fuel at Iwakuni was $2.55, but in February 2006 the base was charging 56 cents a gallon more than AAFES and NEXCOM.
Anstey said AAFES personnel regularly review pricing policies on all products sold, including gas.
“With that said, there are no current plans to revise” AAFES’ overseas fuel pricing policy, he stated.
Anstey said that because 100 percent of AAFES earnings are returned to the military community “in one form or the other, earnings from the sale of any service or product at AAFES facilities generates revenue for military MWR efforts.”
In the past 10 years, AAFES has contributed $2.4 billion to Morale, Welfare and Recreation programs to spend on quality-of-life improvements, including Youth Services, Armed Forces Recreation Centers, arts and crafts, aquatic centers, post functions and golf courses, Anstey said.
In addition to funding MWR programs, AAFES earnings are used to build new stores or renovate existing facilities without expense to the federal government, Anstey said.
Pacific gas prices are rising
A year ago, gas prices in the Pacific ranged from $2.839 a gallon for mid- grade fuel in Japan to $2.979 a gallon for unleaded in Guam.
In October, a gallon of midgrade in Japan plummeted almost 54 cents a gallon, from $2.913 a gallon to $2.376.
In February, prices were even lower: $2.232 a gallon in mainland Japan and Okinawa; $2.232 a gallon for unleaded in South Korea; and $2.229 a gallon for unleaded on Guam.
But prices began to rise steadily in March, reflecting a similar trend in the States.
On May 19 of this year, fuel prices across the Pacific for the first time were $3 a gallon or more, with the exception of Marine Corps Air Station Iwakuni.
As of this week, they were still rising.
According to the latest information from the U.S. Department of Energy Web site (www.eia.doe.gov), stateside gasoline prices last week were up for the fourth consecutive week, increasing 11.5 cents to $3.218 per gallon as of May 21. Prices are 32.6 cents per gallon higher than at this time last year and have reached an all-time, not-adjusted-for-inflation high for the second week in a row, according to the DOE.
— Jennifer H. Svan