Why Joe Biden can't just snap his fingers and make oil refineries hop to it

 There's a great piece in today's Washington Post by Evan Halper. I don't know Halper's ideological leanings, particularly as they'd pertain to matters of the global climate, but his brief WaPo bio says the beat he's covering for the paper is "the tensions between energy demands and decarbonizing the economy."

He demonstrates those chops admirably in this article. It's balanced, which means he shows that, from a practical standpoint, Biden's demands of oil refineries amount to nothing but empty bluster.

He begins with a look at the repurposing of the Philadelphia Energy Solutions refinery:

Hilco Redevelopment Partners has been hauling out 950 miles of pipe from the former Philadelphia Energy Solutions refinery, abandoning the property’s 150-year history of processing crude oil into fuel in this city. The firm is spending hundreds of millions of dollars to convert the 1,300-acre site along the Schuylkill River into a green, high-tech campus for e-commerce and life sciences companies.

“I don’t even know how to operate a refinery,” said Roberto Perez, chief executive of Hilco, which bought the property in a bankruptcy auction in 2020, a year after a massive explosion at the refinery rattled the city. “It’s not what we do.”

Halper then broadens his scope and notes that this is a trend around the country.

He then gets into Biden's letter to the nation's major oil companies, and its focus on recent profits, and then the response:

The companies are unmoved. The profits follow years of heavy losses at many facilities after demand plunged during the pandemic. Unpredictable shifts in oil markets had created a challenging business climate before that. Even at this moment of windfall refinery earnings, when the profit margin on each barrel of oil processed has jumped from a dollar or two a year ago to as much as $18 today, investors are hardly jumping at the opportunity to enter the sector. They fear the profits are short lived. The administration’s environmental priorities — as well as rising public and corporate concern about climate change — would make many refineries obsolete in the not-too-distant future.

Building and upgrading the mammoth structures is a messy, expensive undertaking that can drag on longer than a decade, strain the finances of even the biggest fossil fuel giants and run the risk of getting abandoned before that investment is returned.

And why bother, given that the administration's insistence on moving from normal-people energy sources into the play-like forms is going to make the whole undertaking even more costly than it would be otherwise?

“I don’t think you are ever going to see a refinery built again in this country,” Chevron CEO Michael Wirth said in an interview with The Washington Post this month.

“It’s been 50 years since we built a new one,” Wirth said. “In a country where the policy environment is trying to reduce demand for these products, you are not going to find companies to put billions and billions of dollars into this.”

Besides, not all refineries are owned by oil companies:

Some of the nation’s 129 refineries are owned by large oil companies such as Chevron, while others are operated independently. At the facilities, the components of crude oil are separated and processed into fuel for vehicles and planes, as well as industrial petroleum products such as lubricants.

There's also the efficiency factor. Pipelines can move oil much more quickly than rail cars can;

The Philadelphia refinery had already fallen into bankruptcy the year before it was engulfed by fire. New pipelines from the North Dakota Bakken region and the Permian Basin in Texas had begun pumping crude directly to Gulf Coast and Midwest refineries. Those refineries could then afford to sell their products much more cheaply than the Philadelphia facility, which could access the North Dakota and Texas crude only through rail car shipments.

The poor old Philadelphia refinery was also a victim of government telling private businesses what kinds of products they had to make:

The refinery was also not equipped to blend ethanol into its fuels, forcing it to purchase expensive credits on the open market to meet its obligations under the federal Renewable Fuel Standard. The price of those credits had soared by 2017, creating a crushing financial burden.

So Joe Biden can grandstand and spew ill-informed demands all he wants. The free market, meanwhile, will respond to signals as it always does.

UPDATE: Just came across Bjorn Lomborg's New York Post column for today. It makes great follow-up reading while one is still thinking about energy policy.