I love buying gas from Costco.
I love Costco gas mostly because it's insanely cheap. Like 20-25 cents cheaper than my local gas station (and always that cheap, according to many gas apps), which is arguably somewhat pricier than average because it's in a weird location and super convenient for people who live near the weird location.
I try to go when the warehouse isn't open, so the lines are not as crazy.
Sometimes I go and it's no wait for a pump… and when it's dark out and their lights are on, it looks like an oasis in the desert.
My Costco gas station opens at 6 AM and closes at either 9:30 PM (M-F), 8 PM (Sat) or 7 PM (Sun). That means it opens three to four hours before the warehouse. It remains open for an hour or two after the warehouse closes. That's a nice wide window when the wait will be short.
One day, for like a minute, I wondered – why is it so cheap? Is Costco gas as good as other pricier gas stations? Does it matter?
Gas is Regulated
Thanks to the Clean Air Act, the Environmental Protection Agency regulates fuel and fuel additives used in cars (and other engines) because burning gasoline contributes to pollution.
The actual regulation is 40 CFR Part 80 (“Regulation of Fuels and Fuel Additives”): subparts A (general provisions, applying to all 40 CFR Part 890 fuels programs), B (controls and prohibitions), C (oxygenated gasoline), D & E (reformulated gasoline), G (detergent gasoline program), H & O (gasoline sulfur) and J & L (gasoline toxics).
The point is that with respect to the gasoline itself, it's all pretty much the same.
It's All About The Additives, Baby!
What about the additives? These detergents?
These are also EPA approved and there is a certain amount that each company must add to their formulation. They're added so vehicle engines don't accumulate carbon deposits and lose efficiency. If you sell gasoline in the United States, you are subject to these rules.
Where things differ is when companies do more than what is required.
In fact, when the EPA announced the minimum gasoline detergent standard in 1995, many companies were putting more than what was required… so they started a “Top Tier” designation. Actually, it's an industry standard so it's TOP TIER™ – all caps, trademarked, the whole nine.
The Top Tier designation is not associated with the EPA but is controlled by the industry. To get the logo, you need to meet their specifications.
Who sells gasoline that qualifies as Top Tier? (official list, as of June 2021):
- Break Time
- Costco Wholesale
- CountryMark & CountryMark Plus
- Diamond Shamrock
- Express Mart
- Fast Fuel
- Harmons Fuel Stop
- HFN – Hawaii Fueling Network
- Kirkland Signature Gasoline
- Kwik Star
- Kwik Trip
- Meijer & Meijer Express
- Metro Petro
- MFA Oil Petro-Card 24
- Ohana Fuels
- Phillips 66
- Road Ranger
- Simonson Station Stores
- Value America
- Win Win
Most of the major gas companies are included.
Does it matter?
This Consumer Reports article seems to think so.
They cite an AAA report that studied the difference between Top Tier and non-Top Tier gasoline. They discovered that non-Top Tier gasoline left more carbon deposits.
Here's the difference in an intake valve run continuously for 100 hours on a cycle meant to replicate 4,000 miles of real driving:
How much more do you pay for this better gasoline? It's not likely you do.
Local price competition has a greater impact on price than the additives. Gas stations just off a highway are more expensive than those farther from the exits. Those near a Costco will be cheaper than those farther away.
(Many years ago, I'd get my gas at an Exxon that was a mile away from my Costco because there were never any lines. It was always two cents a gallon more but saved me a good ten minutes of waiting time – an easy trade.)
How is Costco Gas So Cheap?
It's because gas stations are notoriously difficult businesses. If you run a branded gas station (think Shell, Exxon, etc.), the economics of the business are really challenging.
You're required to buy a certain amount of gasoline from the brand's refineries, which means 100% of the gasoline isn't from the cheapest possible source. This is because each company adds its own mix of additives and detergents. It's a small percentage but it's there and so the station has to get it.
Next, they also pay licensing fees and royalties to the brand much like any other franchise.
Lastly, they take all credit cards and can't negotiate special fee structures that would add to the bottom line.
That's why most of those gas stations have a convenience store. That's where they make all of their money.
Costco doesn't have to do any of that! They buy whatever gas they want, they obviously don't pay royalties because they're company-owned, and they negotiate great fees from credit card processors. You can only use Visa cards right now and that's because American Express, their previous partner, wasn't willing to give them as good of a deal.
Costco isn't cheaper because the gas is cheaper, it's because the economics of the business are completely different. They make money off the gasoline and not off the convenience store.
Costco Gasoline is better than the EPA regulations for additives and detergents.
It's also cheaper.
So go when there are no lines and win!
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This is a very accurate post. I worked at an oil refinery as an engineer. You could watch tankers pull up and get loads of gasoline and diesel one after another. Shell, Exxon, Chevron all getting the same gasoline, except for the additives. It is true some companies add more detergent additives than others but the EPA specifies a minimum level of intake valve detergent which they think is sufficient to keep your engine running well and not polluting. I buy the cheapest gasoline I can find and haven’t had a performance issue with any of my cars, which I run a lot of miles on.
Jim Wang says
Thanks for confirming Steveark!
I think it’s important for people to avoid waste in their spending whenever possible and this is certainly one of them. We fuel up so often that making a few changes matters. It’s like people not buying premium when their car calls for regular – there’s no reason to overpay!
Am not sure I can with some of your comments. First, many gas stations modify fuels, for example, with on-the-spot addition of Ethanol. Some Costco Premiums in the US have ethanol, some do not in Canada. And even then, not everywhere. So what? Well, a performance car tells you several parameters, including mileage and a power estimate. What i can assure you is that even on my old Civic I could feel a crappy premium vs a good one. E.G. Shell. Conclusion? 200000 miles incident free and am onto something. But then, how come my 400 Hp german tells me the same with its ECU? Because some fuels are terrible. Unless doing an analysis for separation, etc, performance cars need GOOD fuel with detergents that often sync into engine oil design. That is why my German does 7.2l/100 kms on Shell V Power or 8.5 on Esso 91 with Ethanol. Perceptively the engine alters timing to compensate… To ad that, the AAA finally admitted that ethanol corrodes rubbers (doooh!), something even a high school science student can demonstrate. Alcohols attacks many components in a fuel system. So, better mileage, better torque and better engine life on select premiums, so why advertise generic sources as a smart choice???
Christian STCLAIRE says
You are absolutely right, the OP did not cover Ethanol percentages in certain brands and grades, so I consider his post non relevant to the subject, high ethanol robs you of BTUs , period !
I am looking for the brand and grade with least amount added.
Grant @ Life Prep Couple says
I’m shocked I don’t see Sheetz on that list? Are they part of someone else or have I been buying low tier gas?
We did the Costco thing for a year because we got a half off membership. It was roughly 5-10 cent cheaper than Sheetz but once factoring in the full price of the membership it was basically a wash so we didn’t renew. At 20-25 cents it would be a no-brainer though.
So you purchased a Costco membership for the gas savings alone? Surely your taking advantage of additional savings in the store that should factor into this calculation?
Using a Costco visa credit card gets you an additional 4% credit on your purchase + the 2% on your Executive Membership! Compared to other gas stations in the area, Costco gas is 40 to 45 Cents a gallon cheaper! Nothing in Hawaii comes close!!
Jim Wang says
As far as I’ve seen, Costco gas is always cheaper and when you couple the other Costco membership perks (credit card cashback, executive rebates), it’s by far cheaper.
Hawaii is beautiful but it’s so expensive!
Jim in Rialto says
If you check the Costco website, you will find that “Rewards are not calculated: (i) on purchases of cigarettes or tobacco-related products, gasoline, Costco Cash Cards ….” Many people think they get the 2% reward/rebate at the pump, but that is wrong.
LB Rourke says
I think you are wrong. Most all I purchase is gas and just
cashed my rebate check over $120.
Jim Wang says
So I checked, you get the cashback from the card but the Executive rebate doesn’t include gasoline.
My Money Wizard says
Good read! I’ve always wondered this.
There’s a shady gas station near me that’s always way cheaper than everyone around them. No surprise, they didn’t make the Top Tier list!
Thanks for sharing.
I concur with Steveark. Raw gasoline is called RBOB for Regular Oxygenated Blend and nearly all buyers have basic additives added. The Top Tier designation is more for marketing purposes although TT gas has better additives. If you’re worried about carbon buildup a pint of Seafoam in a tank full will clean up the fuel system and engine nicely.
One tip, is there is a truck filling the underground tanks at the station go sone where else. Fill stirs up the water and sediment in the tanks which can get in your gas even with the filters
Jim Wang says
Great suggestion about seeing a truck filling the underground tanks!
That is a great tip, if you see a tanker truck anywhere near the pumps keep on driving, you don’t want that water in your tank! I’ve had multiple friends that learned that the hard way.