Why Gas is Cheaper in Kentucky Compared to Indiana
The price of gas continues to climb seemingly on a daily basis. As of this writing (Friday, March 11th, 2022), the national average is $4.33 per gallon for regular (the 87 octane most of us use) according to AAA. That's up two cents from yesterday, and well above the previous record of $4.10 back in 2008 before the financial crisis. Unfortunately, it looks like may be a while before we see them drop back down with some experts suggesting the higher prices will likely be around for "for weeks if not months," according to CBS News. There are a number of reasons for the spike in prices, none of which I'll get into here because that's not the point of this article. If you want more on that, the CBS News article I referenced two sentences ago explores those reasons in-depth. What I'm here to explore is why those of us living in Indiana, particularly the southern part of the state, find ourselves paying 20 to 25 cents more a gallon than our friends and neighbors just south of us in Kentucky.
Why Gas Prices Are Different State to State
Believe it or not, the price of the oil gasoline is made from isn't much of a factor, according to Hugh Daigle, an associate professor at The University of Texas at Austin’s department of petroleum and geosystems engineering, who said in a recent interview with USA Today, "We're all subject, more or less, to the same crude oil prices." It's what happens after the oil is turned into gasoline where prices get affected.
The Distance from the Refinery to the Gas Station is a Factor
In addition to the manufacturing costs they incur to make the gas in the first place, transportation costs are a key factor in the price we pay at the pump. The farther away a gas station is from a refinery the more it costs the company to deliver it. The company has to pay the drivers and of course, the farther they have to travel, the more fuel the trucks have to use to get it there.
We have two refineries in Indiana, BP Whiting Refinery and CountryMark Refinery. BP Whiting is in the northwest corner of the state along Lake Michigan just outside of Chicago, while CountryMark is here in southern Indiana. Mt. Vernon to be exact. If you're wondering why gas is as high as it is even though we have a refinery right here in the Tri-State, it's because CountryMark only supplies the gas they make to the gas stations they run.
Kentucky, on the other hand, only has one refinery, the Catlettsburg Refinery in the northeastern part of the state.
Long story short, neither state has a refinery near the Evansville area, therefore the cost to get it here will be more than it is for the cities and towns closer to where those refineries are located. But, there's another, and bigger, factor in play.
Incorporated into the price of gas is the federal gas tax, which is currently about $0.18 per gallon, according to a January gasoline tax report from the American Petroleum Institute (API). That tax is the same for everyone regardless of what state you live in. It's the individual state taxes that are the biggest contributor to the price gap between Indiana and Kentucky.
The API report ranked all 50 states and the District of Columbia (i.e. Washington D.C.) from highest to lowest based on the amount of taxes they add to the price of a gallon of gas. Those taxes, according to the report, include the state's excise tax, as well as other state taxes including, "sales taxes, gross receipts taxes, oil inspection fees, county and local taxes, underground storage tank fees, and other miscellaneous environmental fees."
Kentucky came in 35th at 44.40 cents per gallon, while Indiana ranks 7th at 68.19 cents. Now, I'm not great at math, but a calculator tells me that's a 23.79 cent difference. And that math works out as the Circle K on the corner of Highway 41 and Washington Avenue in Evansville is charging $4.18 per gallon (as of this writing), while less than six miles away, the Circle K on Highway 41 South in Henderson (the first one you see after crossing the Twin Bridges) is charging $3.92, a difference of 26 cents.
For someone like me who has a truck with a 23-gallon tank, a trip to Henderson to fill up would be $5.98 cheaper which over time would add up. However, the fact I would be using more gas to go out of my way to get it means whether or not it would be worth the trip is debatable.
One Important Note
The numbers above from the API are an average from each state. Since local taxes vary from county to county, some Indiana counties may currently be paying less per gallon than some in Kentucky. For example, there are a number of places in central and northern Indiana where the current price per gallon is less than the national average, according to the gasoline price tracking website, Gas Buddy.
When prices will go down across the board is anyone's guess. Until they do, it looks like we all may just have to limit how much driving we do, if possible.
[Sources: AAA / CBS News / USA Today / Indiana Office of Energy Development / U.S. Energy Information Administration / American Petrolium Institute]