Gas prices below $3

Gas stations across Grand Cayman now have full serve gas prices below $3 a gallon.

And Country Manager of Esso Ltd. Alan Neesome has defended the slow decline of gas prices in the Cayman Islands, saying there is a lag effect.

No-one from Chevron (Texaco) Caribbean Inc. had responded to questions by press time.

In a recent letter to the editor in the Caymanian Compass in December, Mr. Roger M Davies noted that at that time crude oil had dropped from almost $160 a barrel to under $50 and the cost of a gallon of gas at the pump in the US dropped by over 60 per cent, which, he said, fairly reflected the reduction on the international market.

However, he said the price of a gallon of premium gas in Cayman dropped from $5.20 to $3.62, a drop of 30 per cent. ‘If we are to receive a fair reduction to reflect the market, as in the US, a gallon of premium should cost only $2.10,’ the letter writer said.

In an emailed response to the Caymanian Compass, Mr. Neesome pointed out that fuel pump prices in Cayman are now lower than those quoted in the letter. ‘This is relevant to my reply to your questions as it illustrates the lag effects of the market here,’ he said.

Neither Esso Ltd. nor Chevron (Texaco) Inc. set prices at the pump. They sell wholesale to the local dealers that are then free to set their own prices.

Mr. Neesome said, ‘Esso Cayman has reduced its wholesale pricing to its dealers and industrial consumers consistent with fuel cargo deliveries to the island: the latest in December being a 29 cent a gallon reduction in gasoline on 29 December 2008 and a 30 cent a gallon reduction on 18 December; because of the nature of fuel delivery logistics to Cayman, there will always be a lag in fuel price changes compared with the USA example used by your reader.’

As of Tuesday 6 January all the full serve, lower grade gas pump prices in Grand Cayman were below the $3 mark with the lowest full serve price $2.87 at Texaco on Shedden Road.

Comparing prices from 30 December to 6 January, Esso service stations in general lowered prices by 29 cents, in line with the wholesale decrease.

Service stations in Grand Cayman dispense gas in imperial gallons, rather than US gallons. An imperial gallon measures approximately 1.2 to a US gallon.

Mr. Neesome pointed out that any comparison of fuel pricing made between Cayman and the USA is not a fair comparison because the market and supply logistics are totally different and disproportionate.

‘To make a comparison using percentage based on the national USA pump price average may trigger wrong conclusions, since fuel sold in Cayman has different rates of fixed and variable costs – ocean freight and insurance, import duties, port fees – all of which are not affected by international price changes.’

He added that the USA is predominantly a self serve market while Cayman is predominantly a full serve market and the octane grade of Regular gasoline here in Cayman is equivalent to a mid-grade in the USA.

‘Even within the USA, comparisons state-to-state display a wide range of pump prices because of differences in individual state supply logistics, fuel specification and taxation/duties – just as there is in a comparison of the US with Cayman,’ he said.

Mr. Neesome added that the USA is an enormous market. ‘It is the largest single consumer of fuel and energy in the world, consuming the equivalent of 20 million barrels of oil per day about 24 per cent of global demand (86 million barrels per day): it has huge fuel storage capacity, extensive pipeline, rail and road distribution networks providing corresponding benefits of scale to pass to the consumer, as a result, price changes (up and down) in the USA are quickly transferred to the consumer, often daily, sometimes more often,’ he said.

Grand Cayman is a very small consumer in comparison to the USA. ‘Only 3,000 to 4,000 barrels per day in the summer peak – CUC being Cayman’s largest consumer of fuel (diesel) and the main driver for cargo deliveries to the island, not gasoline,’ Mr. Neesome said.

Supplied by ship, Esso Cayman schedules its deliveries with suppliers two to three months in advance to get the best price available and secure supplies to ensure Cayman does not run out of fuel, he stated.

‘After a ship loads, it can take up to two or three weeks to reach Grand Cayman depending on the fuel sources and the route taken. This causes a lag effect in passing on price changes (increases or decreases) to the consumer here.’

Mr. Neesome said Esso consolidates its fuel cargoes with other countries in the region to help reduce unit freight costs. Ships are scheduled to load about every three to four weeks in winter: Cayman consumes relatively small volumes of gasoline so not all ships deliver gasoline; some bring jet fuel and diesel.

‘The gasoline being sold in Esso service stations today was likely purchased and loaded on a ship back in early to mid November at the international prices of that time,’ he said.

In Mr. Davies letter he suggested that there has been a cartel operating in Cayman for decades to the detriment of the fuel consuming public.

In response to this, Mr. Neesome said, ‘Esso Cayman abides by strong ethics and anti-trust policies, which prevent collusion between the oil companies, so allegations of a cartel and ripping-off consumers are wrong. Esso’s partnership with the people of the Cayman Islands has existed for over 70 years; we are recognised for sustained investment programmes for the creation of jobs and for our continuous incorporation of technology to service consumers with high quality products and services,’ he said.

Esso is recognised for its support to the community, said Mr. Neesome. During recent Hurricane Paloma relief efforts in Cayman Brac, Esso donated fuel to vessels taking relief aid items to the island and a large generator to get a service station running, he noted, and also helped after Hurricane Ivan in September 2004, along with supporting other projects such as the Blue Iguana Recovery Fund and Meals on Wheels.