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The crude crunch

Iran's nuclear program. Violence in Nigeria. Shuttered Gulf of Mexico production. These factors mean oil prices are nearing their all-time record of $70 a barrel. And many businesses are passing higher costs to consumers.

Compiled from staff reports
Published April 11, 2006


Oil prices briefly surpassed $69 a barrel Tuesday, trading near a seven-month high on concern that supplies from Iran, the world's fourth-biggest supplier, may be disrupted by a confrontation over the country's nuclear program.

The renewed threat of rising oil prices is pushing gasoline prices above $3 in some parts of the United States and prompting a wide range of businesses to find new ways to conserve - or pass the extra cost on to their customers. The average price for regular-grade gasoline in the Tampa Bay area Tuesday was $2.71 a gallon, according to AAA. A year ago, gas averaged $2.26.

With daily global demand expected to average 85-million barrels per day in 2006, and the world's suppliers operating with less than 2-million barrels per day of excess production capacity, any additional output snags are likely to drive prices higher, analysts say.

"The stock numbers and political problems around the world aren't helping pull this market back at all," said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, Calif. "We've reached last year's peak summer highs and it's only April. That's somewhat scary."

Six Times business reporters asked energy-sensitive portions of the Tampa Bay economy what steps, if any, they are taking in the face of higher oil and gasoline prices. While responses varied, the message was clear: Once again, everyone will have to start bracing for higher energy costs.

Airlines: Fuel hits fares

Higher jet fuel prices are making it hard for long-suffering airlines to turn a profit, even in a year marked by increasing fares and record demand for air travel.

The fuel bill for airlines increased $10.3-billion from 2004 to 2005, according to the Air Transport Association, a trade group for major airlines. For the first quarter of this year, jet fuel prices are up 40 cents from the same period in 2005, to $1.85 per gallon.

Carriers have taken various steps to conserve. They've removed seat back phones and excess water from planes to cut weight. They taxi using one engine instead of two and plug into electricity at the gate to keep from running on-board generators that gulp fuel.

Alaska Airlines recently announced plans to replace older jets with more fuel-efficient models. But even if other U.S. airlines can afford them, new jets won't be available for at least two years because so many foreign carriers are in line to buy.

Consumers can expect airlines to keep increasing fares to offset their higher fuel bills. Even low-fare king Southwest has pushed up prices as fuel hedges, contracts that lock in prices, cover less of its fuel costs.

Steel: Turn off the 4,000-horsepower fan

Turning off fans and closing doors might not seem to be major energy-saving moves. But when you are Gerdau Ameristeel, the second-largest minimill steel producer in North America, and your annual energy bill is $300-million, even the most basic conservation efforts can have a major effect.

Gerdau Ameristeel, whose executive offices are in Tampa, is big on energy savings. Mike Mueller, vice president of steel mill operations, said plenty of simple but valuable suggestions come from plant employees.

Like closing furnace doors properly. Fixing steam leaks on gas-fired boilers. Moving steel rods through the heating, cooling and reheating process faster.

And those fans with giant 4,000-horsepower motors that used to run for hours even when the furnaces were not in use? Turn them off and save about $150 an hour.

Mueller said Gerdau Ameristeel has gotten better at tapping off-peak hours for energy use. Many of the company's plants shut down their furnaces from midafternoon through 10 p.m. when consumer demand is highest, and crank up during the night.

Energy consumption at Gerdau Ameristeel has dropped by more than 10 percent over the past three years.

"We're still spending about $300-million a year on energy," Mueller said. "But that's with gas and electricity prices up."

Tourism: Emergency ads are ready

Florida's tourist industry looks at energy prices from a global perspective. Gas remains a bargain compared with other countries, so shortages pose a bigger fear than prices. But the industry has a plan on the shelf if vacationers this summer have trouble getting accustomed to $3-plus-a-gallon travel again.

Many tourist counties beefed up their advertising for this summer to counter fears of hurricanes that studies show weigh on summer vacation prospects' minds. That's why many hoteliers think summer booking is lingering behind last year's pace. Some hotels marketers have considered gas price gift certificate promotions like those of last fall, but have yet to pull the trigger.

State tourism agency Visit Florida has a $2-million emergency fund to promote travel within the state or from neighboring states should gas prices or some other event suddenly take a toll. A recent Miami University poll found 150 tourist industry executives expecting a smaller visitor increase this summer of about 2.2 percent.

"Overall, they said demand moderated, but it has not been caused by gas prices - yet," said Bud Nocera, chief executive officer of Visit Florida.

Auto dealers: Habits change slowly

After a disappointing March in which several major players, including General Motors, Ford, Nissan and Mazda, saw sales of new cars and light trucks drop from the year before, the auto industry has to contend with gas prices approaching $3 a gallon.

But there's usually a lag of several months or longer before high gas prices really hurt auto sales.

"We're not seeing any effect yet," said Frank North, marketing chief at Tampa's Ferman Automotive. "But gas prices are going up as we speak, and by the time school lets out, there may be quite a different shift in people's thinking."

Auto dealers have to rely on the automaker's ability to predict what the public will want months and sometimes years in advance. If the automakers plan well and have cars people want, the dealers will be ready.

"If they don't," North said, "retailers don't have an alternative."

Most large dealers protect themselves by carrying vehicles with a wide range of fuel efficiency. Ferman sells 10 foreign and domestic makes, from Chevy Tahoes to Mini Coopers.

"It's not based solely on fuel efficiency," North said, "but having a wide variety has been a very good part of our business strategy."

Most Americans say they would consider buying a hybrid car when making their next purchase, according to a recent Gallup poll. But they haven't felt the need to.

"There has been little additional interest in hybrid, diesel or smaller engines," said Jim Myers, chief operating officer of Crown Auto, which operates eight Tampa Bay area dealerships. "It (high gas prices) might be impacting driving habits more so than driving preferences right now."

Trucking: Charge extra for fuel

Quality Distribution Inc. of Tampa may haul lots of chemicals and other bulk products across the country, but it isn't feeling the effect of higher gasoline prices. That's because the company levies a fuel surcharge on its customers, then in turn gives the money to its truck drivers, most of whom own their tractors.

"We're pretty much insulated because it's a direct pass-through," said Gerald Detter, chairman and chief executive. Quality adjusts its surcharge weekly as gas prices fluctuate.

He said the surcharge system has been common in the trucking industry since the mid '90s.

Utilities: Pass on energy costs

Electric utilities are allowed to pass through the price of rising fuel costs to their customers. So utilities rarely worry about higher fuel prices hurting their profits.

Still, power companies such as Progress Energy Florida and Tampa Electric try to minimize the effect of high fuel costs on their customers by price hedging and diversifying the types of fuels used to run their power plants.

Progress generates about 16 percent of its electricity at oil-burning power plants. The recent surge in crude oil prices is a concern but is roughly in line with recent fuel price trends, which have seen the company's oil costs nearly triple since late 2001, Progress spokesman Cherie Jacobs said.

Tampa Electric generates less than 1 percent of its electricity via oil. Lately, it's been relying more on cheaper coal instead of the company alternative, high-priced natural gas.

Times staff writers Steve Huettel, Kris Hundley, Mark Albright, Tom Zucco, Helen Huntley and Louis Hau contributed to this report, which includes information from the Associated Press and Bloomberg News.

[Last modified April 11, 2006, 23:39:29]


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