Expansion of Tesoro’s refinery in Mandan will increase diesel and gas supplies, but it's not likely to affect pricing in the state.

“Price is not dictated by how many refineries that we have in this state,” said Mike Rud, president of the North Dakota Petroleum Marketers Association. “If that was the case these refineries across the U.S. would be up and running.”

Tesoro has completed its $35 million Mandan refinery expansion, increasing the facility’s capacity by 10,000 barrels to 68,000 barrels per day, according to spokeswoman Tina Barbee.

"It's certainly going to help with maintaining the level of supply," said Gene LaDoucer, a spokesman for AAA North Dakota. "Whether or not it's going to be reflected at the retail level right away is difficult to say. Hopefully it will help prevent price spikes based on lack of supply."

Rud said supply has been tight the last two summers. Shortages are caused by planned and unplanned refinery outages or if a pipeline goes down.

“Gasoline has been hard to come by,” he said.

The average price for a gallon of unleaded gasoline in the state was $3.80 on Wednesday — the same as the national average. The average price per gallon was $3.917 in Bismarck, $3.94 in Mandan, $3.701 in Fargo, $3.695 in West Fargo, $3.97 in Dickinson and $3.935 in Williston.

Most of the fuel in North Dakota is transported by the NuStar Energy Pipeline to a terminal in Fargo-Moorhead. It is distributed locally as well, via trucks, according to Justin Kringstad, director of the North Dakota Pipeline Authority.

Even though petroleum products are refined in the state, North Dakota is on the end of pipelines coming from the east and gets the leftovers, Rud said. The Mandan refinery also has contracts that it has to meet out of state that were set up before demand increased here.

“We can't use every gallon of gas produced at that refinery in the state,” Rud said.

Barbee said Tesoro does not provide details on plans or pricing for distribution of product.

“Those items are considered confidential for proprietary and competitive reasons,” she said.

Gasoline makes up about 60 percent of production at the refinery. About 35 percent to 40 percent of gasoline produced stays in North Dakota, but that number is going up too, Rud said.

“That (the expansion) just helps them supply more gasoline here,” he said.

About 80 percent of the diesel produced at the refinery stays in state. Fuel sales in North Dakota are 2-1 diesel fuel to gasoline.

“Diesel is king,” Rud said.

The oil industry and agriculture are the two biggest consumers of diesel. The expansion increased production by 5,000 barrels, to 22,000 barrels per day in response to growing demand.

LaDoucer said Bakken crude generally sells at a discount to the Tesoro refinery, but that does not necessarily show in the price consumers pay.

“I think other factors are overcoming the fact that it’s available at a discount,” he said.

Barbee did not say whether Tesoro receives a disount on purchases of crude oil or how that might transfer to prices at the pump.

“There are many factors that determine the price of gas, including the cost of crude oil, distribution and marketing costs, refining costs and federal and state taxes,” she said. “It wouldn’t be appropriate to estimate gas prices, as the market place and market conditions, such as supply and demand, determine the price that consumers pay at the pump.”

LaDoucer said generally, at the wholesale level, gas prices across state are within three cents of each other. According to Oil Price Information Service, the average cost per gallon for wholesale in Bismarck-Mandan was $3.28 on Wednesday. In Fargo it was $3.30. In Minneapolis it was $3.27.

“It’s a matter of the marketplace,” he said when it comes to retail prices. “It’s not as simple as saying town A is selling gas for more than town B.”

Randy Kopp, the owner of Arrowhead Tesoro in Bismarck, said the profit margin on gasoline for Bismarck station owners is 20 to 30 cents. He said he offers a daily 10 cent discount to try to help his customers save money. Other stations in town also offer small discounts.

The Tribune tried to reach other station owners as well. Dave Wannenberg declined to comment. Dave Froelich was unavailable. The owners of the Unistop and Cenex stations did not respond when called three times.

“The profit margin you see in Fargo is lower than you would expect anywhere else in the country,” LaDoucer said. “In Bismarck it’s closer to average or maybe a little higher than average.”

There is no law in North Dakota restricting profit margins on fuel sales.

“I’m a producer myself. We'll sit for a week and a half when we should be raising the price and we don't,” Rud said. “Everybody has a different business model ... There’s no more competitive industry in the country than retail gasoline.”

One factor for the price spread is the number of providers, LaDoucer said. AAA surveys 58 stations in Fargo, 11 in West Fargo, 31 in Bismarck, 12 in Mandan, 19 in Dickinson and 16 in Williston.

Another factor is the number of sources for product.

“Bismarck has a couple while Fargo has six,” LaDoucer said

The customer base in Fargo is different than other parts of the state. There are more people and because Fargo has two major interstates the traffic is much more transient, LaDoucer said. Those people passing through on their way to somewhere else are more likely to buy food or other items in the convencience stores.

“Sales of higher margin items allow owners to mark down gas,” LaDoucer said.

Kopp said he does most of his business in his store and auto shop.

LaDoucer said in many cities gas station owners try to keep similar prices to avoid losing business to a competitor.

“What I bought gas for this week is still the same as what I paid three or four weeks ago,” Kopp said, adding speculation over supply shortages due to Hurricane Isaac caused an increase at the pump.

“I had to have to keep up,” he said. “Everybody has to, otherwise you’ll have a price war.”

LaDoucer said he has seen the spread increase even more between Fargo and western cities in recent years.

“There are so many more people out there now,” he said. “Price is going to go up if you have more people vying for the same amount of gasoline.”

LaDoucer said overhead costs for western station owners has gone up to, affecting fuel prices.

“They probably can’t find anybody to work for $8 an hour,” he said. “They have to pay $13 or $14.”

Reach Jessica Holdman at 701-250-8261or jessica.holdman@bismarcktribune.com.