Democrat Louisiana Gov. John Bel Edwards, spotted heaping straw onto the camel’s back, naturally denied it last week when the creature’s back broke.
It’s no accident that just as election returns showed Democrat former Vice Pres. Joe Biden taking a lead in the close 2020 presidential election, Royal Dutch Shell announced it would close its Convent refinery. It has tried to sell the plant for months, as part of a larger strategy to shed its free-standing refineries and retaining integrated units that include its Norco facility in favor of developing more alternative energy and focusing more on chemicals production. It was quite a turnaround from just three years ago, when Shell bought out its partner at Convent.
Days before the sale announcement, it had warned it might have to shutter plants couldn’t sell. It didn’t matter that the Convent location was fairly current technologically. It becomes the largest of the nine refineries closed in North America in 2020 and comes on the heels of Calcasieu Refining’s shutting down its Lake Charles refinery.
As Republicans look extremely likely to retain Senate control for the next two years, a projected Biden Administration can’t pursue its extreme climate control agenda, but with such a dangerous agenda even in background, Shell doesn’t want to take chances. The move will shed 700 relatively higher-paying jobs, affect thousands more, and reverberate negatively throughout south Louisiana’s economy.
Edwards put on a brave face in his remarks on the closing. The Wuhan coronavirus pandemic has led Louisiana to have the most negatively affected economy among the states, not helped by an economic lockdown to varying degrees imposed by Edwards that has produced the worst health outcomes of the states. This only contributed to Shell’s decision to cut its losses, facing a decidedly negative state economic forecast over the next couple of years.
But Edwards claimed “It’s important to note that Shell is reducing the number of standalone refineries companywide in favor of consolidated industrial sites that integrate refining and chemical operations. This decision is not due to a lack of competitiveness on the part of Louisiana’s business climate or workforce ….” He’s right about the first sentence.
Because the decision had everything to do with “a lack of competitiveness on the part of Louisiana’s business climate or workforce,” to which Edwards has been a major contributor. There’s no reason Shell could not have built integrated facilities at Convent like Norco, and understanding why begins with a review of operations at the only other refinery Shell plans on retaining in the U.S., Deer Park in Texas, and its Geismar specialty chemical production plant.
Deer Park long ago expanded to add other chemical processing, and underwent a major expansion almost two decades as part of restarting olefins production there. That increased capacity now supplies the Geismar plant. With Louisiana, then and now, having its income tax (Texas has none) and confiscatory property taxes for business, although back then offset for up to a decade through the Industrial Tax Exemption Program, these made it more economically competitive for Shell to rebuild an aging facility in Texas and then ship its product hundreds of miles for processing in Louisiana than to build a new plant to do so at Convent for short shipment to Geismar.
Certainly, it seems three years ago Shell had big plans for it. But then Edwards won reelection and now comes Biden. Tellingly, it has yet to announce closures of another couple of refineries on sale whose combined output is just under that of Convent’s, so clearly that facility is seen located in the weakest environment.
In policy terms, the situation did deteriorate. Edwards changed the nature of ITEP to make companies run a gauntlet of local governments more susceptible to special interest pressure, as it had to do so when last year Shell pitched an expansion at Geismar for producing monoethylene glycol. Ascension Parish governments recently have shown themselves more receptive than those in St. James Parish to these tax abatements among other controversies that discourage economic development, punctuated by the day before Shell’s announcement that opponents of another firm’s project in the parish had jawboned the federal government into reconsidering its approval. (Shell’s Geismar expansion for now seems on hold.)
One more confirmatory point in the timing of Shell’s announcement not being accidental also happened on election day. State voters rejected a constitutional amendment that would have streamlined a payment-in-lieu-of-taxes process, where companies make deals with taxing entities for a promised set of payments outside of the normal property tax levy process. Allies of Edwards lobbied against it, leading to its defeat and placing one more straw by not making it any easier for firms to locate or expand in the state.
Edwards could have prevented this negative environment. His counterproductive ITEP changes, his constant threats to raise corporate taxes, and his acquiescence to attacks on the energy industry by allies all have contributed to the increasingly jaundiced view that the energy sector has of its Louisiana prospects. Keep in mind this is the same governor who ignored the pandemic as it gained a foothold in Louisiana, seeing in late February as an existential threat instead climate change and who later announced the goal of the group he assembled to study the matter was to reduce state greenhouse gas emissions to zero by 2050.
Even though Edwards will exit the scene in three years (some speculate fewer), the economic pressures of the pandemic don’t leave any breathing room to wait on a more favorable fiscal environment. Policies favored by Edwards and his Democrat predecessors have heaped discouragement on the energy industry in Louisiana, and the election day results blocked the end of the tunnel as far as Shell and its Convent plant were concerned.
Its decision had everything to do with a sour business climate that Edwards has perpetuated and intensified, which even if eventually it can sell the asset it will be for a lower price. Edwards trying to evade blame for this is the response of a political hack rather than a leader willing to reevaluate his mistakes.