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The Texas Blue
Advancing Progressive Ideas

Port Arthur: Future Home of the America's Largest Oil Refinery

This is great news for the Texas oil industry and anyone who has stock in Motiva Enterprises: Royal Dutch Shell, in collaboration with Saudi Arabia through Motiva Enterprises, is about to begin making the largest oil refinery expansion in over thirty years. Saudi Arabia is planning to spend nearly $7 billion to expand operations in Port Arthur, Texas. Currently, the Motiva refinery has the production capacity of 285,000 bpd (barrels per day). The new expansion would increase that capacity to roughly 600,000 barrels per day (bpd) by 2010.

What does that number really mean? As of today (September 27, 2007), the current market value of a barrel of crude oil is about $83.42. After a single barrel of crude oil is refined into gasoline, it is worth about $37 in profit over market value to those refineries. Given that the new capacity is to be 600,000 bpd, the expected daily gross is over $22 million per day, before expenses are considered. The initial cost of the expansion must also be considered. According to Citigroup analysts, the expansion will cost $21,000 per barrel-a-day expansion (around 315,000 additional barrels), which would bring the cost of expanding the refinery to over $6 billion overall. That estimate does not include the rising cost of steel, labor, and crude oil.

To combat labor concerns Motiva has hired Becon Construction to build the expansion. Coincidentally, Becon Construction received a $249,955 grant from the Texas Workforce Commission’s Skills Development Fund earlier this week. The grant is to aid Becon Construction in creating 240 construction labor jobs.

Motiva itself received a similar Skills Development grant from the TWC is 2005, for $424,000. At the time, Rep. Joe Deshotel had this to say about the grant:

“This Skills Development Fund grant will provide Motiva’s fire fighters, engineers, plant inspectors, master mechanics and more, with the essential skills they need to make them and the company more competitive.”

Motiva did become more competitive. Since 2005 Motiva Enterprises has benefited from over half a million dollars of TWC grants. This is not to say that Motiva has failed to create jobs: the expansion is estimated to create over 4,500 new construction jobs and over 300 new refinery jobs. These numbers do not include the 400 workers already employed at the refinery.

The expansion is also meant to combat record-high gas prices, and as always, the record-high demand for oil. But what of the downside? Have we all forgotten about the environmental and health problems associated with oil refineries? Does anyone remember the results of the studies that showed that the Port Arthur oil refineries pumped over 15 million pounds of pollutants into the air in 2003?

Or, also in 2003, when over 500 residents of Port Arthur sued a half-dozen of Port Arthur’s refineries for health problems related to the pollution seeping from the plants? Many of these residents had to have their houses hosed down after several unplanned chemical releases negatively impacted the surrounding neighborhoods.

Since these incidences have occurred, Motiva Enterprises has agreed to provide additional pollution controls at their refineries. In light of these new controls, the Texas Commission on Environmental Quality (TCEQ) has granted Motiva with the clean-air permit required for the refinery expansion. But is the TCEQ’s endorsement enough to calm the storm that is the Texas environmentalist movement?

For Hilton Kelley, the president of Community In-Power and Development Association (CIDA), the answer is no. In November of 2006, CIDA came to its own agreement with Motiva Enterprises. Under this new arrangement with the Port Arthur community, Motiva has agreed to provide air-pollution monitors at the new site. Motiva has also agreed to give $3.5 million to the local area in order to help fund local businesses and health clinics.

In April of 2006, Shell estimated the cost of this expansion at a little over $6 billion. After the reality of inflation, environmental concerns, and price of steel, the expansion’s estimated cost is now at $7 billion. On September 21, 2007, Royal Dutch Shell announced that the expansion will be completed on time in 2010 and on budget according to the new estimate. For better or worse, the largest oil refinery in the United States will be in Port Arthur, Texas.

There is no question whether the expansion is good for the economy. Just remember the trade off: if you hate paying over $3 for a gallon of gas, then this refinery expansion is for you. However, if gas isn’t an issue, but you hate paying an exorbitant amount for basic health care, look to expansions such as these as causes.

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