- Jun 6, 2007
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Today, the American people often hear about local or regional petroleum refineries being permanently shut down or being scheduled for such. This is a really really bad situation for America and Washington should be doing everything it can to stop this There are those people who say the government should stay out of this let the natural forces of the economy operate and what happens happens. These non-interventionist couldn't be more wrong. These natural forces are shaping up that in not too many years essentially the regional refinery business across America will largely be lost and America will be left with an humongous Gulf Coast refinery industry supplying the entirety of America. One simple reason this shouldn't be allowed to occur is that this Texas/Gulf Coast industry is located squarely in America's hurricane belt and with America's hurricanes getting worse over the years there is a real possibility that one day this Gulf Coast refinery region could see a direct hit by a category four or five hurricane which would devastate these refineries taking them off-line for quite likely one to two years minimum which would cause major economic harm across America, Hurricane Katrina which didn't even directly hit this refinery region in 2005 knocked some of the Gulf refineries off-line causing a significant negative impact in the commodity markets. Allowing the Gulf Coast to essentially be this sole source will put the domestic petroleum markets on a yearly roller coaster ride during the yearly hurricane season as tropical storms build out in the Atlantic and look like they could pose a large hurricane threat to the Gulf Coast this will be the epitome of poor stewardship of the economy by Washington if they allow this to happen! Another major reason which alone justifies stopping this death of regional refineries is petroleum products are too important to local and regional economies to largely allow a single regional source supplier for the nation which will eliminate valuable competition in the industry, specifically competition from regional refineries which puts strong downward pressure on prices; petroleum prices significantly impact consumers purchasing power and businesses operating expenses in local communities thus significantly impacting their local economies. People should reflect back to the nineteen nineties less than twenty years ago when there was a shortage of refinery capacity in America the American consumer was paying a premium at the pump for this shortage. Also, remember back then that communities across America were opposed to the industry locating a refinery in their community resulting in the industry having to just expand the Gulf Coast refineries. There is important lessons leaders in America need to be taking from this history which are once America's leaders allow these regional refineries to be permanently shuttered the use of these properties will be converted from refining and because of the "NOT IN MY BACK YARD" values of the American people if local economies learn they made a big mistake in letting their local refineries die they will be stuck with a serious economic problem because local community opposition will block building new refineries in their localities. Moreover, refinery businesses are not in the charity business they are guided by the profit motive pretty much as any type of industry in America is so when the owners of the Gulf Coast refineries see that regional refineries across America have largely gone out of business they will use their market force power to raise prices and this will be costly to consumers, businesses and truckers in these regional markets and this problem will be magnified if one considers the pricing power the pipeline and tanker owners who move the petroleum products from the refineries to regional wholesalers will also have with the competition from regional refineries no longer existent!
These non-interventionist would probably say that the interventionist are placing too much value on the importance in the future of oil to local economies, for how long have the American people heard that line from economist over the years where history has shown them to be completely wrong. Sure in fifteen to twenty years, America's passenger vehicles and light trucks fleet will largely be electric powered albeit electric/gasoline hybrids because charging the battery will still take too much time which will require these vehicles to have gasoline power back-up which will still necessitate the demand for some gasoline. When it comes to America's truck fleet they will still need a lot of petroleum fuel at that time; critics will say natural gas power will knock out diesel as the fuel of choice in the trucking industry in the future but they are being overly optimistic with that assessment executives of natural gas producers in America are going to find a way to get America produced natural gas to foreign markets where they can sell it at a much higher price than in America which will reduce supply in America thus raising domestic prices for natural gas which will deter its use as a truck fuel and considering natural gas refueling stations don't exist throughout America and won't be built because the fuel will not be that attractive economically for the reasons stated America's truck owners to a large degree will stick with diesel fueled trucks maintaining the country's strong demand for diesel. This same price development for natural gas will result in there still being a strong demand for home heating oil in the future. Also, there is no reason to conclude the airline industry in this future time frame will replace petroleum fuel as the fuel for their jets resulting in regional airports still providing strong demand for petroleum products in the future. A less talked about reason but nevertheless still important reason for still needing regional refineries in the future is that petroleum refineries make asphalt that regional and local governments use to build and resurface their local roads, yearly inordinate increases in the price of asphalt will send these state and local municipality governments into disarray it will be a disastrous situation Washington will be allowing to occur here.
This writer is from Philadelphia which is currently experiencing this phenomena of the national demise of the regional refinery business. A Sunoco refinery in Philadelphia and two not far to the south of the city one a Sunoco and the other a Conoco Phillips refinery are either closed or are scheduled to close by the end of this summer, the Philadelphia refinery holds tremendous economic importance in the region it supplies petroleum products to consumers all up the NorthEast corridor of the country it processes 335,000 barrels-of-oil a day. Local officials understandably are aggressively trying to stop these shutterings because of all the jobs directly at stake. But even completely disregarding this direct job loss issue this local refinery industry should be saved for reasons that Americans across the country should find compelling and for reasons that apply to other local refineries that are in danger of being shut down. When these local refineries are shuttered businesses and truckers in the area will face higher prices for petroleum products compared to businesses and truckers that are located close to a refinery for the profit motive reasons specified earlier. Overtime, this will result in a significant number of businesses either moving or not locating in these refinery lacking regions resulting in heavy loss of jobs and depressed wages in these regions. From a national interest standpoint this will result in more people in this depressed region going on food stamps, being on Medicaid, going out on Social Security disability and being involved in crime, etc. all leading to significant increase in federal expenses. Moreover, some of these businesses that leave or don't locate in refinery lacking regions won't locate within the U.S. but in foreign countries leading to a loss of jobs for the nation and a loss of federal and state tax revenue. There is broader implications here too with the loss of businesses in these refinery lacking regions and the resulting economic hardship that ensues this will create a strong force among the electorate in these localities to throw out the incumbents in Washington for they aren't doing their job they aren't remedying the situation and returning prosperity to these peoples' communities. This should be an alarming danger to politicians and power brokers in Washington because this political instability can result in extremist politicians being elected into office and taking action in Washington that really hurts America.
The answer in short is that the federal government has to make the regional refinery business in America reliably profitable. To do this the federal and state government should do the following make local refineries and local refinery industries that are not profitable or are not reliably profitable "enterprise/empowerment zones" for ten to fifteen years where these refineries will be free from the expense of federal and state taxes over this period. Also, part of the problem is that some regional refineries can't readily get access to good quality (low-sulfur) or cheaper oil from the Midwest or Canada which puts them at a competitive disadvantage in the industry so Congress should give the Secretary of the Energy Department the power to designate new pipeline spurs that will transport oil to these regional refineries from these attractive producing areas as "federal empowerment zones" thus making the economics of these pipeline projects more attractive thus having them built more quickly thereby helping regional refineries. These regional refineries need to be protected from foreign refineries who ship their products to America and sell them undercutting U.S. regional refineries prices in part because they don't have to deal with the expensive environmental regulations that U.S. refineries have to; it's legitimate to expect refineries throughout America to have to compete against one another because they all have to follow the same rules but it is not legitimate to expect American refineries to have to compete against foreign refineries that only have to follow more advantageous rules it's not fair so Congress to remedy this should pass a law mandating all refineries and pipeline operators in the U.S. on a monthly basis have to post their lowest sale price over the past month and these foreign refineries when they sell their product to U.S. wholesalers will be required to not undercut the lowest price a wholeseller could get from a U.S. refinery per the posted prices - the federal government protects a lot of domestic industries for one the domestic sugar cane industry it is time they protect the U.S. refinery industry the stakes involved compellingly call for it. The other thing that federal and state governments should do is help these regional refineries that that are strategic for local economies even in light of America using less petroleum with the technology they need to process thick oil and thereby compete in today's marketplace. Specifically, it is being referred to the fact that some of these regional refineries can only process low-sulfur low viscous oil which sells at a premium in the marketplace compared to thick high sulfur oil that is available; refineries need specific technology to process thick oil I believe it is referred to as cracking equipment, unfortunately it cost hundreds of millions of dollars for a refinery to buy such equipment. The Federal and state Governments should make available to these strategically vital regional refineries low interest loans to finance this cracking technology; in the Philadelphia refinery industry case creative and good thinking calls for offering the large Sunoco refinery the deal that the federal and state governments will loan the new owner the financing to purchase the cracking equipment and during those times that the new owner can't pay the loan because the refiinery isn't generating the profit, the state of PA will make the loan payments and the state of PA can get the money by temporarily putting a small fee on a gallon of gas sold in the state like two, three or four cents a gallon, the burden on PA could be lowered here if other states that utilize the benefits of this Philadelphia refinery join in on back stopping the loan, of course the PA legislature would need to pass a bill authorizing this but I think it could pass because this backstop protection probably won't be needed if the aforementioned other help for regional refineries is implemented. The power brokers in Washington and Harrisburg need to sit down with the national union that represents refinery workers across America and negotiate with them saying were going to put this giant help on the table to save the regional refinery industry you need to put giant help on the table like stopping work rules that necessitate excessive numbers of workers and/or labor hours to do a job and stop with the high pension and high health care costs for retirees. One of PA Governor Corbett's top people said something very appropo on this Philadelphia Refinery issue subject when he essentially said we probably don't need to save all three refineries that are on the block in the Philadelphia region because demand for petroleum products is dropping and will continue to do so in the future but we should be saving two of the refineries. If the Trainor and Philadelphia refineries were saved all doesn't have to be lossed for the community of Marcus Hook with their refinery officials should consider that it was only around five years ago that BP was considering building a Liquified Natural Gas import terminal a few miles west of the Marcus Hook refinery on the New Jersey side of the Delaware river it fell through with the shale gas boom but officials should consider that many experts have said that the Marcellus and other natural gas shale regions of the Pennsylvania/West Virginia vicinity need a LNG export facility to ship their natural gas to foreign customers where they can sell it at much higher prices than they can domestically, the Marcus Hook refinery would be very attractive for such an LNG export terminal.
Federal elected officials from the Pennsylvania/New Jersey/Delaware region should go to war with the power brokers in Washington over saving the Philadelphia refinery industry, they should ally with Federal elected officials from other areas of the country where the local/regional refinery has recently been or is slated to be closed. Collectively all these federal elected officials have a lot of leverage there is a lot of must doos that the power brokers in Washington need to do over the next eighteen months where these elected officials can trade their support for things like extension of the Bush Tax cuts for the Middle Class, lifting the income ceiling on the alternative minimum tax and postponing the automatic Doctor reimbursement cuts for Medicare Doctors to name just a few. This alliance of elected officials should draw a line in the sand saying you power brokers in Washington put together a package that saves regional refineries or we aren't helping you pass your must do pieces of legislation over the next eighteen months!
These non-interventionist would probably say that the interventionist are placing too much value on the importance in the future of oil to local economies, for how long have the American people heard that line from economist over the years where history has shown them to be completely wrong. Sure in fifteen to twenty years, America's passenger vehicles and light trucks fleet will largely be electric powered albeit electric/gasoline hybrids because charging the battery will still take too much time which will require these vehicles to have gasoline power back-up which will still necessitate the demand for some gasoline. When it comes to America's truck fleet they will still need a lot of petroleum fuel at that time; critics will say natural gas power will knock out diesel as the fuel of choice in the trucking industry in the future but they are being overly optimistic with that assessment executives of natural gas producers in America are going to find a way to get America produced natural gas to foreign markets where they can sell it at a much higher price than in America which will reduce supply in America thus raising domestic prices for natural gas which will deter its use as a truck fuel and considering natural gas refueling stations don't exist throughout America and won't be built because the fuel will not be that attractive economically for the reasons stated America's truck owners to a large degree will stick with diesel fueled trucks maintaining the country's strong demand for diesel. This same price development for natural gas will result in there still being a strong demand for home heating oil in the future. Also, there is no reason to conclude the airline industry in this future time frame will replace petroleum fuel as the fuel for their jets resulting in regional airports still providing strong demand for petroleum products in the future. A less talked about reason but nevertheless still important reason for still needing regional refineries in the future is that petroleum refineries make asphalt that regional and local governments use to build and resurface their local roads, yearly inordinate increases in the price of asphalt will send these state and local municipality governments into disarray it will be a disastrous situation Washington will be allowing to occur here.
This writer is from Philadelphia which is currently experiencing this phenomena of the national demise of the regional refinery business. A Sunoco refinery in Philadelphia and two not far to the south of the city one a Sunoco and the other a Conoco Phillips refinery are either closed or are scheduled to close by the end of this summer, the Philadelphia refinery holds tremendous economic importance in the region it supplies petroleum products to consumers all up the NorthEast corridor of the country it processes 335,000 barrels-of-oil a day. Local officials understandably are aggressively trying to stop these shutterings because of all the jobs directly at stake. But even completely disregarding this direct job loss issue this local refinery industry should be saved for reasons that Americans across the country should find compelling and for reasons that apply to other local refineries that are in danger of being shut down. When these local refineries are shuttered businesses and truckers in the area will face higher prices for petroleum products compared to businesses and truckers that are located close to a refinery for the profit motive reasons specified earlier. Overtime, this will result in a significant number of businesses either moving or not locating in these refinery lacking regions resulting in heavy loss of jobs and depressed wages in these regions. From a national interest standpoint this will result in more people in this depressed region going on food stamps, being on Medicaid, going out on Social Security disability and being involved in crime, etc. all leading to significant increase in federal expenses. Moreover, some of these businesses that leave or don't locate in refinery lacking regions won't locate within the U.S. but in foreign countries leading to a loss of jobs for the nation and a loss of federal and state tax revenue. There is broader implications here too with the loss of businesses in these refinery lacking regions and the resulting economic hardship that ensues this will create a strong force among the electorate in these localities to throw out the incumbents in Washington for they aren't doing their job they aren't remedying the situation and returning prosperity to these peoples' communities. This should be an alarming danger to politicians and power brokers in Washington because this political instability can result in extremist politicians being elected into office and taking action in Washington that really hurts America.
The answer in short is that the federal government has to make the regional refinery business in America reliably profitable. To do this the federal and state government should do the following make local refineries and local refinery industries that are not profitable or are not reliably profitable "enterprise/empowerment zones" for ten to fifteen years where these refineries will be free from the expense of federal and state taxes over this period. Also, part of the problem is that some regional refineries can't readily get access to good quality (low-sulfur) or cheaper oil from the Midwest or Canada which puts them at a competitive disadvantage in the industry so Congress should give the Secretary of the Energy Department the power to designate new pipeline spurs that will transport oil to these regional refineries from these attractive producing areas as "federal empowerment zones" thus making the economics of these pipeline projects more attractive thus having them built more quickly thereby helping regional refineries. These regional refineries need to be protected from foreign refineries who ship their products to America and sell them undercutting U.S. regional refineries prices in part because they don't have to deal with the expensive environmental regulations that U.S. refineries have to; it's legitimate to expect refineries throughout America to have to compete against one another because they all have to follow the same rules but it is not legitimate to expect American refineries to have to compete against foreign refineries that only have to follow more advantageous rules it's not fair so Congress to remedy this should pass a law mandating all refineries and pipeline operators in the U.S. on a monthly basis have to post their lowest sale price over the past month and these foreign refineries when they sell their product to U.S. wholesalers will be required to not undercut the lowest price a wholeseller could get from a U.S. refinery per the posted prices - the federal government protects a lot of domestic industries for one the domestic sugar cane industry it is time they protect the U.S. refinery industry the stakes involved compellingly call for it. The other thing that federal and state governments should do is help these regional refineries that that are strategic for local economies even in light of America using less petroleum with the technology they need to process thick oil and thereby compete in today's marketplace. Specifically, it is being referred to the fact that some of these regional refineries can only process low-sulfur low viscous oil which sells at a premium in the marketplace compared to thick high sulfur oil that is available; refineries need specific technology to process thick oil I believe it is referred to as cracking equipment, unfortunately it cost hundreds of millions of dollars for a refinery to buy such equipment. The Federal and state Governments should make available to these strategically vital regional refineries low interest loans to finance this cracking technology; in the Philadelphia refinery industry case creative and good thinking calls for offering the large Sunoco refinery the deal that the federal and state governments will loan the new owner the financing to purchase the cracking equipment and during those times that the new owner can't pay the loan because the refiinery isn't generating the profit, the state of PA will make the loan payments and the state of PA can get the money by temporarily putting a small fee on a gallon of gas sold in the state like two, three or four cents a gallon, the burden on PA could be lowered here if other states that utilize the benefits of this Philadelphia refinery join in on back stopping the loan, of course the PA legislature would need to pass a bill authorizing this but I think it could pass because this backstop protection probably won't be needed if the aforementioned other help for regional refineries is implemented. The power brokers in Washington and Harrisburg need to sit down with the national union that represents refinery workers across America and negotiate with them saying were going to put this giant help on the table to save the regional refinery industry you need to put giant help on the table like stopping work rules that necessitate excessive numbers of workers and/or labor hours to do a job and stop with the high pension and high health care costs for retirees. One of PA Governor Corbett's top people said something very appropo on this Philadelphia Refinery issue subject when he essentially said we probably don't need to save all three refineries that are on the block in the Philadelphia region because demand for petroleum products is dropping and will continue to do so in the future but we should be saving two of the refineries. If the Trainor and Philadelphia refineries were saved all doesn't have to be lossed for the community of Marcus Hook with their refinery officials should consider that it was only around five years ago that BP was considering building a Liquified Natural Gas import terminal a few miles west of the Marcus Hook refinery on the New Jersey side of the Delaware river it fell through with the shale gas boom but officials should consider that many experts have said that the Marcellus and other natural gas shale regions of the Pennsylvania/West Virginia vicinity need a LNG export facility to ship their natural gas to foreign customers where they can sell it at much higher prices than they can domestically, the Marcus Hook refinery would be very attractive for such an LNG export terminal.
Federal elected officials from the Pennsylvania/New Jersey/Delaware region should go to war with the power brokers in Washington over saving the Philadelphia refinery industry, they should ally with Federal elected officials from other areas of the country where the local/regional refinery has recently been or is slated to be closed. Collectively all these federal elected officials have a lot of leverage there is a lot of must doos that the power brokers in Washington need to do over the next eighteen months where these elected officials can trade their support for things like extension of the Bush Tax cuts for the Middle Class, lifting the income ceiling on the alternative minimum tax and postponing the automatic Doctor reimbursement cuts for Medicare Doctors to name just a few. This alliance of elected officials should draw a line in the sand saying you power brokers in Washington put together a package that saves regional refineries or we aren't helping you pass your must do pieces of legislation over the next eighteen months!
