7-11-08 by dugan
I’ve heard many an oil executive say their company would be glad to build new refineries, but the government/the environmentalists won’t let it happen. President Bush has called for dumping environmental regulation to help build more refineries. But Shell Oil’s abrupt cancellation of a huge new refinery in Sarnia, southern Ontario, tells a completely different story.
Granted, the site is in Canada. But it is smack on the U.S. border, less than 50 miles from both Detroit and Flint, Michigan. It could supply the northern Midwest, upstate New York, New England, the Canadian capital of Ottawa and southern Quebec with equal ease. Shell certainly wasn’t just looking at Canada. You can see what I mean on this Google map.
The project had some environmental opposition because of nearby waterways, but also had community support and the cooperation of the Canadian government, because Canada badly needs new markets for what’s coming out of its tar sands. In explaining Shell’s sudden departure to the locals, a Shell executive said that
[S]everal factors contributed to the decision, including inflationary pressure in the oil and gas industry, market conditions, and "project execution factors," including the availability of skilled labour.
Shell was a little more explicit in a Detroit News story:
[T]he company cited "the current project execution environment, market conditions and the current inflationary pressures across the oil and gas industry."
"This is an international environment right now and it includes the fact there are a large number of oil and gas projects being developed simultaneously around the world," said Amrik Ahluwalia, Shell’s general manager of manufacturing and expansion.
"The resources required for these projects are phenomenal and it poses a challenge to do projects of this nature and do them right."
What both of these statements boil down to is that the most profitable private industry in the world is unwilling to spend the money to build a refinery that would serve North America.
The reference to "projects being developed simultaneously around the world" translates to "It’s cheaper to build a refinery in Indonesia, and we get the same world price there for our fuel. So why bother."
And the line about scarce and costly labor may well refer to growing union alliances aimed at siphoning off some of the oil industry’s record profits for workers. Here’s one from 2006. And even more germane to refinery construction, steelworkers announced their global alliance this month. In his keynote speech at the recent steelworkers’ convention, United Steelworkers’ President Leo Girard had this to say:
While our members are getting killed at the pump just getting the gas they need to drive to work, the oil industry is swimming in wealth – the greatest financial haul in the history of mankind.
We’re talking about an industry with nearly $2 trillion a year in revenues – more than three quarters of it flowing to five major integrated companies.
Last year, industry profits totaled more than $155 billion, more than a third of that – over $40 billion in net income – was raked in by ExxonMobil alone.
Yet, this is an industry that has gotten a contract extension in the each of the last two bargaining cycles…
An industry in which corporate disregard for worker safety is both deadly and a disgrace…
An industry in which our members still have to pay a significant portion of their health care costs, a situation that is nothing short of insulting and demeaning.
Especially when the industry’s top executives are giving themselves more in pay and perks than the economies of entire countries.
Like ExonMobil’s CEO, who hauled in nearly $17 million in compensation last year.
One guy even pocketed $300 million as he walked out the door.
To top it all off, this industry is getting more than $17 billion of our hard-earned money in the form of federal tax breaks.
Well let me tell you, the boys in Big Oil are in for a rude awakening.
Because, if anybody thinks the Steelworkers is going to give the CEOs who run this industry another pass, they’d better think twice.
Shell’s decision isn’t about environmental opposition. It’s about the money. About not wanting to increase the supply of gasoline and diesel, because the price might drop. It’s about an industry putting about half of its record profits into buying back its own stock rather than drilling for oil, developing renewable fuels or building and expanding refineries .
Oil executives will keep yakking about needing permission to build more refineries if Americans want cheaper gasoline. But when Ontario called Shell’s bluff, Shell said "no thanks".