Arizona Gasoline Price Update

Back in January, Stillwater published an article reviewing gasoline price spikes seen in Arizona. In this article, we update that analysis.

As shown in the figure below, Arizona gasoline prices continue to trend higher than the U.S. average, but the difference between the two has narrowed compared to trends observed in 2023. So, what happened?

The price spike seen in April of 2024 is caused by the changing of gasoline from winter blend to summer blend. Arizona still saw a larger price increase than the U.S. average, which shows that they still have a supply constraint issue.

Phoenix uses a boutique fuel (AZRBOB), which some suggest to be one of the causes of the price spikes. As documented in our previous article, however, Tucson does not use a boutique fuel and experiences the same price increases. The main issue that Arizona faces is an issue of gasoline supply. The main supply comes via pipeline from El Paso, Texas. The pipeline volume is finite, but to make matters worse those volumes had been limited because of a Pipeline and Hazardous Materials Safety Administration (PHMSA) letter requiring Kinder Morgan to reduce pipeline pressure by 20%. In the March update of the PHMSA letter, 95% of the anomalies identified in the Consent Agreement have been resolved, accounting for 86% of Kinder Morgan’s affected pipeline segments. Although there is not explicit confirmation in the March 15^th PHMSA letter specifying the pipeline segments that have been cleared to go back up to their higher operating pressures, Stillwater finds it reasonable to assume that the Kinder Morgan West and East lines have been cleared and returned to normal operating pressures, thus enabling greater throughput to relieve Arizona’s previous pipeline logistical constraints during their peak demand periods.

Gasoline demand continues to increase in Arizona. According to Federal Highway Administration data, gasoline demand in Arizona matched the U.S. average with a 2% increase from 2022 to 2023. Arizona’s population also continues to increase. According to the U.S. Census, Arizona population increased by 0.89% from 2022 to 2023, while the U.S. population as a whole increased by just 0.5%. As population continues to increase, so will gasoline demand in Arizona. Lifting the PHMSA restrictions helps with supply constraints, but the finite volume of the pipeline remains. Kinder Morgan is taking steps toward increasing gasoline supply into Arizona. They just closed an open season to solicit support for a proposed expansion of the East pipeline. If this expansion moves forward, it would increase the supply to Arizona from El Paso. Per Kinder Morgan, the expansion is expected to be completed by July 2025 if there is enough support during the open season.