Drivers Turn Backs On Premium Gas

Appeal of Higher Octane Can't Offset Burgeoning Price

If it weren't for a small but loyal group of customers, Channara Keam would stop selling premium gasoline at his College Park station. Sales of the high-octane fuel are down almost 25 percent over the past year, he said, and it no longer produces the kind of profit margins that dwarf those of lower-grade fuels.

"People are still buying it, but not much at all," said Keam, 42. In contrast, sales of regular unleaded gas increased 25 percent during the same period. "People don't want to pay the high price."

Gasoline sales figures show that drivers are forsaking the higher price in unprecedented numbers. After years of decline, the market share for premium gas dwindled to the single digits last year. Some analysts expect the drop to be more pronounced this summer, as the gap widens between the prices of regular and premium gasoline. Regular gas is averaging about $2.98 a gallon in the Washington region, up 80 cents from the comparable time last year. Premium fuel is selling for $3.25 a gallon, up 87 cents.

"Prices have increased substantially -- even though demand is sharply lower," said Tom Kloza, chief analyst with the Oil Price Information Service in New Jersey. "Premium has seen its best days. . . . You would almost describe it as a dying grade."

The demand for the top-grade fuel has steadily declined over the past two decades. In the 1980s, premium gas regularly captured market shares of more than 25 percent, according to the Energy Information Administration. But as prices steadily rose and automotive technology improved, the market share of premium gas fell, to about 15 percent by the late 1990s. Premium grades account for only 9.6 percent of gasoline sales from August 2005 to March 2006, the latest figures available.

"Our suspicion is that a number of people found that their cars ran just fine" on regular gasoline, said Mark Routt, senior consultant at Energy Security Analysis Inc. in Wakefield, Mass. "And they never went back."

Premium gas can prevent an engine from knocking, but fewer cars need it because newer vehicles are equipped with sensors that adjust the engine to the grade of octane in the gasoline, automotive experts said. Higher-octane gas can increase performance in some cars under certain conditions but will make no discernible difference in most cars, they said.

Feeding premium gas to cars that don't need it "probably is a waste of money," said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

Based on the proportion of the premium-only vehicles on the road today, the gas should account for about 15 percent of all sales, Routt said. However, EIA figures show that the last time premium had such a high market share was in early 2000, indicating that many motorists are ignoring the "Premium Fuel Only" reminders etched by auto manufacturers on the gas-tank caps.

It is not uncommon, Kloza said, for premium fuel to be sold for 40 cents a gallon above the price of regular gasoline at the wholesale level. But it's "very difficult to price it up the pump that aggressively," he said.

Keam couldn't agree more.

Keam, who runs his College Park gas station with his wife, Narvy, used to make up to 15 cents a gallon on premium fuel, almost twice as much as he made selling regular gasoline. But premium is more expensive this year since the addition of ethanol, a cost the Keams have largely absorbed. The profit for both fuels is now about 8 cents a gallon, Channara Keam said. "We're trying to compete," he said.