It’s Trump, farmers and DowDuPont vs. Philly-area refineries

Source: By Joseph N. DiStefano, Philadelphia Inquirer • Posted: Monday, October 30, 2017

In a White House sworn to support manufacturing jobs, free oil and gas producers from overbearing rules, and cut renewable-energy giveaways, Iowa corn farmers, ethanol makers, and their corporate patrons seem to have more clout than Delaware River oil-refinery owners or Pennsylvania oil workers.

Under a system designed to favor corn alcohol over cheaper petroleum, independent oil refiners that lack arrangements to blend ethanol with gasoline, like the ones along the river, are obliged to make what amounts to penalty payments. Under current arrangements, they pay millions to big oil companies like ExxonMobil that mix a lot of ethanol with their gasoline, and to retailers like Wawa that sell gasoline with ethanol.

How expensive is that? Standard & Poor’s has cut Philadelphia Energy Solutions’ refinery-operator unit to junk-bond status, citing more than $300 million in renewable-energy payments this year. PBF Energy, which runs the refinery at Delaware City, Del., expects to pay more than $350 million, wiping out its profits. Delta Airlines, which owns the Monroe Energy plant in Trainer, estimated its costs at $180 million. These refineries employ more than 2,000 people.

EPA Administrator Scott Pruitt, the oil industry’s friend, suggested easing these payments under the federal Renewable Fuel Standard. So did Trump adviser Carl Icahn, the billionaire investor who controls oil refiner CVR Energy (and Philly-based Pep Boys). But that caused 33 senators — from small-population corn-dependent states and from liberal New England, where they’d rather burn corn than oil — to warn Pruitt off his “disruptive, unprecedented, and very troubling” threat to ethanol. They also stalled work on confirming his deputies. Pruitt backed off.

In a fight that cuts across party lines, the mini-state senators outshouted Pennsylvanians in Congress, who had joined refinery owners in marching with workers, calling on Trump at Mar-a-Lago and haranguing Pruitt. “These are exactly the kind of working-class jobs the president spoke about on the campaign trail,” U.S. Rep. Pat Meehan (R., Pa.) told me in an email. “Washington politicians talk frequently of bringing manufacturing jobs back to our shores. But first we should protect the middle-class jobs we already have.”

The payments are “an egregious form of corporate welfare” for agribusiness, said U.S. Sen. Pat Toomey (R., Pa.). After meeting with EPA’s Pruitt on Wednesday, Toomey joined Republican senators from Arizona, Oklahoma, and Utah, and two each from Texas and Wyoming, urging Trump and farm-state senators to compromise on easing refinery payments — while warning against betraying the energy workers who backed Trump.

“I urged my members to vote for Donald Trump, [but] now we’re left out in the cold,” Ryan O’Callaghan, president of United Steelworkers Local 10-1 at Philadelphia Energy Solutions, told the Wall Street Journal.

There are corn supporters even in the heart of the Philadelphia region’s chemical complex. DowDuPont, which has invested in biofuels and is a major supplier of farm pesticides and seeds, supports the renewable-fuel payments policy and other government mandates “to increase the quantity of biofuels in the transportation fuel supply,” said spokesman Daniel Turner in Wilmington. Ethanol reduces U.S. reliance on fossil fuels and boosts employment in farm country, Turner said. The company sees refiners’ payments as “the right mechanism” to make ethanol attractive.

Between pro-corn DowDuPont and oil-refiner PBF, it’s no wonder Delaware’s ruling Democrats are keeping a low public profile on this issue. By contrast, Gov. Wolf called on the Trump administration to waive payments for Northeastern refiners. But Bob Dineen, chief of the Renewable Fuels Association, which includes DowDuPont and a lot of corn refineries, said Wolf is being unfair. Dineen said oil refiners’ problems don’t “severely harm” the economy, as the EPA would have to show to ease payments.

The Philadelphia Energy Solutions unit just “can’t compete with newer, more efficient refineries” closer to cheap North American crude, he said. The company, which is a billion dollars in debt, should add ethanol to its gasoline and end its “crusade” against the payments, Dineen concluded.

With oil-refinery operating profit margins still high, the payments “are not going to single-handedly put any refinery out of business,” oil-stocks analyst Pavel Molchanov of Raymond James & Associates told me. But they are squeezing the managers, lenders and investors who, with state aid and borrowed money, reopened the Delaware River oil plants and put thousands back to work after the last recession.