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Refineries: Cleaning Up Big With Hurricane Aid

by Eliza StricklandSpecial to CorpWatch
August 27th, 2007

When Hurricane Katrina swept through St. Bernard Parish, to the east of New Orleans, it hit the aging Murphy Oil refinery hard. The wind and water swept one tank off its foundation, and spilled about a million gallons of crude oil into the surrounding neighborhood.

Two years after Katrina, the neighborhood still isnít fully cleaned up. Murphy paid to remove the topsoil around the 1,700 contaminated homes, but some residents are still waiting for the replacement sod to arrive. Empty houses bear a faint brown line on their outside walls, marking the level that the contaminated water reached.

The damage suffered by the Murphy Oil Refinery during Hurricane Katrina should serve as a warning, says Anne Rolfes, director of the environmental group Louisiana Bucket Brigade. "They spilled a million gallons of oil Ė thereís never been such a big oil spill in a residential area," Rolfes says. "The neighbors are basically guinea pigs. You just donít know whatís going to happen to them," she says.(98)  Rolfes says many of the residents around the Murphy refinery have complained of respiratory problems and high cancer rates for years.  

But for Louisiana state lawmakers, the spill didn't serve as a warning about the inherent danger of siting a refinery in a flood zone. Rather, they are using a federal recovery program to encourage oil companies to expand their refineries and build new petrochemical facilities.

In the fall of 2005, the U.S. Congress created "Gulf Opportunity Zone" (GO Zone) bonds to encourage businesses to invest along the Gulf Coast. The multi-billion dollar program gave the state governments of Louisiana, Mississippi and Alabama a bundle of tax-free bonds that they could assign to private businesses, which would in turn issue the bonds to finance repairs, new construction or expansions. Because the interest earned on the bonds is tax-free, businesses can get better interest rates from lenders.

When the first bonds were given final approval in April 2006, Louisiana state coffers brimmed with $7.8 billion of GO Zone bonds. Just over a year later, in July 2007, legislators were understandably alarmed to hear that the State Bond Commission had already committed all but $100 million of that amount, and still had $4.5 billion of projects that it had planned to approve. "The entire process has had dysfunctions all of the way," Jerry Luke LeBlanc, the governor's chief fiscal adviser, told the Times-Picayune.(99)

How did the money get spent so fast? It turns out the bond commission approved some of the richest corporations in America for the hefty bonds, elbowing out smaller companies that arguably were more in need of economic aid and incentives.

The Louisiana State Bond Commission had a $250 million-per-project cap, but waived that limit for both Marathon Oil Corporation and the petrochemical company U.S. TransCarbon LLC. Both companies were approved for $1 billion in GO Zone bonds. Another oil company, Valero Energy Corporation has also applied for $1 billion in bonds, but that application is on hold while the commission tries to round up more money.

Both Marathon and Valero are seeking to expand their oil refineries at a time of skyrocketing demand around the world, and record profits for oil companies. For 2006, Marathon reported $60 billion in revenues. According to Marathonís CEO, the Louisiana refinery expansion will generate $350 million in new revenue each year, and thatís a conservative estimate.(100)

Meanwhile, U.S. TransCarbon plans to construct a new facility to produce industrial grade carbon dioxide, which is pumped into partially depleted oil fields along the Gulf Coast to force up the "stranded" oil.(101)

Since it became clear in July that the GO Zone bonds were almost all used up, some state lawmakers have questioned the decisions of the bond commission, saying that it should have determined which projects would be built anyway, and saved the bonds for companies that really needed a boost to get their projects going.(102)  

Others legislators questioned the program's priorities, suggesting that more bonds should have been assigned for residential and retail developments, or for locally-owned businesses. "Youíve just got a stamp" for approval, complained State Senator Joe McPherson, arguing that the bond commission should have been more discriminating in the projects it approved.(103)

Environmental groups are extremely disturbed by the government-aided expansion of refineries across the Gulf South, and say state funds would be better spent developing industries that do less harm to the environment and neighboring communities. "This, to me, is Louisiana and the oil industry at its worst," says Rolfes.(104)

Besides, says Becky Gillette of Sierra Clubís Mississippi Chapter, the oil companies would probably expand even without government aid, because it still makes good business sense. She is opposing the proposed expansion of the Chevron refinery in Pascagoula, which is not being financed by GO Zone bonds. "No one wants a new refinery in their town, so the strategy is to expand them in towns that are already used to breathing the fumes," she says.(105)

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