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Durango braces for high gas prices, but optimism remains

Many impacts are just beginning as the summer tourism season nears
Wade Wardell, assistant manager at the Everyday Gas Station, which usually has some of the cheapest gas in Durango, changes the price of gasoline and diesel on Friday. Rising fuel prices will have a significant impact on commuting workers, said Nate Peach, visiting assistant professor of economics at Fort Lewis College. (Jerry McBride/Durango Herald)
May 21, 2022
What Durango residents are saying about rising pump prices

The red numbers read like a warning: $4.39.

Yet few can avoid them.

Though Russia’s unprovoked attack on Ukraine is more than 5,000 miles away, the war is affecting Durangoans at home. Local gas prices are increasing as they have been across the state and the country, a product of the complex and interconnected global economy.

Over the last month, Colorado’s average regular unleaded gas price has increased almost 20% to $3.966, according to AAA gas data. Diesel has risen 30%.

In La Plata County and Durango, gas prices are even higher.

La Plata County’s average of $4.336 for a gallon of regular unleaded gas is on par with the national average. And on Friday, Durango set an all-time local record for highest average price for regular unleaded fuel at $4.356, according to AAA data. Durango’s previous record high was not listed, but Colorado’s previous record high was set in July 2008 when the average cost was $4.093.

The local impacts of rising gas prices are wide-ranging, affecting most workers and nearly every sector of the economy. For some industries, the effects have been immediate, while others expect the impacts to lag and only become visible later. As pessimistic forecasts from economists point to continued price hikes at the pump and elsewhere, local governments and businesses are preparing to adapt, though optimism remains that gas prices will not affect Durango’s vital tourism industry.

“I think it could have a big impact,” said Nate Peach, visiting assistant professor of economics at Fort Lewis College. “The other thing that’s happening is things have been getting more expensive prior to this invasion. ... You add (gas prices) onto the fire and now things are getting really expensive.”

Delayed consequences

Peach said Durango’s workers will feel the impacts of rising gas most.

“As a town where a lot of people drive, just getting to work is now more expensive,” he said. “There’s a little bit of public infrastructure, but the trolley only goes so far and so often. As you get outside of Durango, when you have people commuting from Cortez or Mancos, it’s going to take a bite out of their income. It’s going to pose a lot of issues for local households, especially people that are middle-income and down.”

“Gas is close to one of these necessities of life,” he said.

The effects of gas prices on commuting workers will be among the most visible. Peach said research suggests increasing gas prices have a knock-on effect, leading people to spend less money in other parts of their lives.

“Because it’s a price that we’re all aware of (and) we see it regularly, it can have these psychological effects where I might cut back just because I feel like things are getting so much more expensive,” he said.

The consequences of unprecedented gas prices will not be limited to workers. They will have broad effects, touching almost everyone in Durango, he said.

Rocky Gallegos, senior facility maintenance technician with the city of Durango, fills up a city van with gasoline on Friday at the city’s maintenance yard in Bodo Industrial Park. The city of Durango and La Plata County budget for their gasoline every year, buying fuel in bulk for the pumps they operate for county and city vehicles. Though the two governments will not feel the immediate effects of rising gas prices until their gasoline reserves run dry, La Plata County has already begun discussing dipping into contingency funds to adapt to rising fuel prices. (Jerry McBride/Durango Herald)

However, local governments and some industries have yet to feel severe repercussions because the spike in gas prices has been so acute.

The city of Durango and La Plata County budget for their gasoline every year, buying fuel in bulk for the pumps they operate for county and city vehicles. The majority of each government’s fleet fill up at the city and county’s gas facilities, shielding them from the commercial gas pumps that have risen drastically in recent weeks.

“We don’t really know quite the effects yet,” said José Madrigal, Durango city manager. “This is something that’s just begun to ratchet up here in the past two, three weeks. (It’s) something we’re definitely going to keep an eye on and see how fuel prices are increasing throughout the city.”

Departments for both governments have fuel budgets ranging from tens of dollars to hundreds of thousands of dollars.

In the city, Durango Transit, the Durango Police Department and Trash and Recycling are among the heaviest users of gas, Madrigal said. The city’s 2022 budget set aside $100,500 in fuel costs for the police department, $108,000 for Trash and Recycling collections, and $160,000 for Durango Transit.

For the county, the Road and Bridge Department and Sheriff’s Operations are among the greatest consumers of fuel, with 2022 budgets of $400,000 and $132,000, respectively.

Though the two governments will not feel the immediate effects of rising gas prices until their gasoline reserves need replacing, the county has already begun discussing the potential effects and plans to adapt if gas continues to skyrocket.

“We budget fuel for the year, so the price increase won’t hurt us until later in the year,” said Ted Holteen, spokesman for La Plata County. “... We don’t know exactly where down the line, but at some point later in the year, we’re going have to start dipping into contingency (funds).”

Like the city and county, Durango-La Plata County Airport will be relatively resilient in the face of rising gas prices, though the broader airline industry will face significant challenges.

Tony Vicari, director of aviation at DRO, said fuel makes up less than 1% of the airport’s annual expenditures.

“It’s not a major budgetary impact for us given the lack of mileage that we put on vehicles, so that’s good from our perspective,” he said. “The flip side, of course, is that the impact of fuel costs on other industries that are pertinent to us is pretty significant.”

Fuel prices typically account for 25% to 35% of an airline’s expenses, the second largest line item behind personnel, Vicari said. Jet fuel prices are also at a 14-year high, he said.

Those rising fuel prices will ultimately be passed on to consumers, and they come at a time when ticket prices were already increasing as air travel rebounds from the pandemic and the peak travel season of summer nears.

“We’ve definitely seen some increases in fares, and it’s fair to say that they’re probably not going to be decreasing anytime soon,” Vicari said.

A Durango & Silverton Narrow Gauge Railroad steam locomotive pulls passenger cars Friday in the Animas Valley. During summer operations, which start in May, D&SNG will use two steam locomotives the company has converted to 100% recycled waste oil in and one diesel locomotive for its trips. Though the recycled waste oil comes at a discount, the railroad still expects costs to increase as transportation gets more expensive, said John Harper, chief operating officer of American Heritage Railways, the parent company of D&SNG. (Jerry McBride/Durango Herald)
Spillover and tourism

Rising gas prices have the potential to spill over into other industries beyond transportation.

Farmers and ranchers rely on gasoline, particularly diesel, to run their tractors and machinery. Many of the fertilizers they use are also petroleum-based.

“Anything that increases the cost of production has a huge effect (for farmers and ranchers),” said Charly Minkler, District 8 representative for the Colorado Farm Bureau, which includes Archuleta, La Plata, Montezuma, Dolores, San Juan and southern Hinsdale counties.

Minkler, who grows hay on his ranch, estimates he will have to increase his prices for a small bale of hay by $2 per bale because of rising gas prices and inflation. That price increase will either cut into his profit margin or be passed along the food system, he said.

“You add fuel and other costs on there and it just makes things tough for people in ag,” he said.

Durango’s restaurant industry has also begun to see signs that gas prices are affecting business.

“In the short term, whether it be supplies to food to even alcohol, we’re seeing those delivery costs are being impacted and even shipping costs are being impacted as well,” said David Woodruff, general manager of El Moro Spirits and Tavern and the Durango chapter president for the Colorado Restaurant Association.

Durango’s location in rural Southwest Colorado, where many goods must be shipped in and out, only exacerbates the problem.

“Even a restaurant that could get all their food from local farms and ranches, they still need aprons and soap and plates and forks and napkins,” said Tim Walsworth, executive director of the Durango Business Improvement District. “A lot of that is going to come in from restaurant suppliers on trucks.”

Peach said ballooning gas prices typically affect rural areas worse.

“In general, rural areas get hit harder because we’re bringing more stuff in from the outside world, whether it’s food or services, and then we also tend to drive more,” he said. “As we have to pay more at the pump, we’re going to be spending less in other areas of the economy, so maybe we don’t go out to eat as much or don’t do as much shopping. That’s where it starts to spill over into other areas.”

Peach, Madrigal and Walsworth all expressed concern about the potential spillover effects gas prices could have on Durango’s tourism economy. According to Visit Durango, tourism is the largest industry in the area, accounting for one-third of the city’s annual tax revenue and 30% of all jobs in La Plata County.

“Another thing that’s concerning (is) especially over the past couple of years Durango has been a drive-to market,” Walsworth said. “... With gas prices never really coming down from last summer and now they’ve skyrocketed over the past couple of weeks, that could start to impact travelers’ decisions on where to go.”

The Durango & Silverton Narrow Gauge Railroad, a staple of Durango’s tourism industry, has already begun assessing how potential impacts to tourism could affect business.

“We’re forecasting this year that tourism will continue to increase, but with the impact of fuel prices it’s an unknown how it’s going to affect the current drive market,” said John Harper, chief operating officer of American Heritage Railways, the parent company of D&SNG.

As D&SNG awaits clarity on ridership projections after the spike in gas prices, the company is also preparing for rising fuel costs. During summer operations, which start in May, D&SNG will use two steam locomotives the company has converted to 100% recycled waste oil in recent years and one diesel locomotive for its trips.

The steam locomotives will limit the impact gas prices have on the railroad’s operations because the recycled waste oil comes at a reduced cost, but the company is still expecting an increase in price as a result of rising transportation costs.

Micah Fry puts gas in her car Thursday at the Marathon Gas Station on north Main Avenue. Over the last month, Colorado’s average regular unleaded gas price has increased almost 20% to $3.966, according to AAA gas data. On Friday, Durango set a record for its highest recorded price for regular unleaded fuel at $4.356 per gallon. (Jerry McBride/Durango Herald)

Fuel for the diesel locomotive will have a significant effect on the railroad’s expenditures. Harper said D&SNG expects its diesel fuel expense to increase more than 30% in 2022.

“Our biggest increase in expense and our biggest cost is going to be using our diesel locomotive with the increase in diesel fuel,” he said.

As D&SNG prepares for growing costs and uncertain ridership, the railroad is bracing for potential impacts to its operations.

“Based on tourism, changes to our operation may need to happen,” Harper said.

Optimism for Durango’s resiliency

While the local effects of rising gas prices are beginning to emerge, the long-term implications remain unclear. Some share optimism that gas prices will have minimal consequences for Durango’s tourism economy.

“I don’t think that we’re going to be as severely impacted because of rising energy costs,” Woodruff said. “I think if people want to be here, they’re going to be here. I’m confident that we’re going to have a robust tourism season.”

Wade Wardell, assistant manager at the Everyday Gas Station, once again changes the price of gasoline and diesel on Friday. Rising gas prices in Durango are a byproduct of the complex and interconnected global economy. As Duragoans pay more at the pump, gas prices reveal a tradeoff between economics and political values, said Nate Peach, visiting assistant professor of economics at Fort Lewis College. (Jerry McBride/Durango Herald)

Visit Durango also expects the area to maintain strong tourism that will help to minimize any effects from rising gas prices compounded with inflation. Rachel Welsh, spokeswoman for Visit Durango, said the radius from which visitors drive to Durango increased during the pandemic from about 5½ hours to 15.

Gas prices will likely shrink that radius again as tourists visit closer destinations, but many people are itching to return to travel as the U.S. emerges from the pandemic, she said.

“We’ve always had a big drive market,” she said. “The gas prices will impact us, but I don’t think as much as other destinations like California and Oregon where the gas prices are even higher and it’s more expensive to visit. It’s all relative in comparison to what other places are facing.”

Durango’s location in the Four Corners and near places like Texas and Oklahoma will help the area maintain some economic resiliency in the face of rising gas prices, Peach said.

“I do think there could be some pain and adjustment,” he said. “Maybe tourism gets a little bit smaller, but maybe not. ... We do have this proximity to Texas and some other areas where even if tourism takes it on the chin for a little bit, maybe for a summer, I think long term we’re well-suited to continue growing and developing.”

No end in sight as values become the question

Though imports of Russian oil and gas accounted for just 3.4% of U.S. petroleum consumption in 2020, according to data for the U.S. Energy Information Administration, rising gasoline prices show no sign of stopping.

Peach said it’s simply a case of disrupted worldwide supply and demand.

“The issue with oil is we just need more oil,” he said. “... Increasing supplies is the end game, but that takes a long time.”

The quickest way to decrease gas prices would be for Russia to leave Ukraine, restoring some normalcy to the global oil market. But with Russia’s troops pushing farther into Ukraine and Russian airstrikes targeting western Ukraine for the first time, a quick resolution seems increasingly unlikely.

Without an immediate resolution, an end to climbing gas prices could be at least a couple months away, Peach said.

“I tend to be an optimistic person. I’m not very optimistic about this,” he said. “The peak (for gas prices) would be if Russia relents and then we relax sanctions. I don’t see that happening. I think at some point you could imagine the Middle East (and) some of those OPEC countries starting to produce more oil, but that is something that doesn’t happen overnight. That could take months to actually have an impact on the price at the pump.”

As for the price that gas could hit, Peach said he continues to revise the number upward. A week ago, he told students gas could reach $5 per gallon. This week he raised the figure to $6 per gallon.

As Durangoans are further squeezed at the pump, gas prices will intensify the debate over the tradeoff between economics and political values, which has already begun blooming nationally. The question essentially becomes how much democracy is worth.

“How much economic pain am I willing to undergo for this political goal?” Peach said. “It might be zero; maybe we shouldn’t have our nose in that corner of the world. Or you could imagine I should undergo a lot of pain because this country has been invaded (and) it was totally unprovoked. That’s the tradeoff we’ve been pushed into.”

ahannon@durangoherald.com

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