Let Them Eat Cake

That was Marie Antoinette’s notorious and callous response when told the peasants had no bread. Well now, such sage advice this is: when the current situation is unbearable, one simply chooses another equally impossible alternative while others look on in self-righteous judgment at your complaint and failure. Likewise, current point of obligation defenders are saying of merchant refiners, “Let them be blenders”. If refiners can’t afford to buy RINs, they should blend their own, a task right up there with eating cake. The argument is entitled, hypocritical and illogical. Here’s why.

Assume for now the transportation fuel industry has experienced a major restructuring and every refiner does, in fact, blend its own production or equivalent volumes. The result would be a Goldilocks situation where every refiner’s marketing and blending capacities would be “just right”. For example, a 100,000 barrel per day refiner would also control operations capable of marketing and blending 100,000 barrels per day of petroleum fuel. How would the transportation delivery system diagram look in that situation?

Big Oil Refining would likely expand its refining operations to equal Big Oil’s marketing capacity. To accomplish this, merchant refining capacity equal to Big Oil’s current supply shortfall would have to leave the industry and be replaced or acquired by Big Oil. In addition, all independent chain marketing operations not owned by Big Oil would have to be transferred to surviving merchant refiners for their blending needs. Or, perhaps, the chain marketers would take over the remaining merchant refiners. Only if these things happen can every refiner blend its own refined volumes as the defenders of the current point of obligation insist. It can’t be any other way. Cake indeed.

To get deeper into the weeds, assume merchant refiners build new blending infrastructure sufficient to their needs. The nation’s blending and marketing infrastructure will then consist of the current Big Oil and independent chain marketing operations plus the new merchant refining facilities. The total national blending infrastructure will then be super-sized. One need not take Economics 101 to know the marketing industry will very quickly rationalize. Marketing operations will shut down until marketing/blending and refining capacities once again match up. Big Oil and independent chain marketers, already well established in the business, will not be the first to go.

The bottom line is “let them be blenders” commands merchant refiners to single-handedly restructure the entire transportation fuel supply industry, a structure developed over more than 100 years since Teddy Roosevelt broke up Standard Oil. The current players are firmly entrenched and vested in their respective roles of Big Oil, independent chain marketer, merchant refiner and small refiner. Asking one or even two of these segments to divest the others is a fool’s errand. It can’t be done, and EPA’s inability to see the truth can’t make it happen. It is unimaginable Congress ever intended such a result. Good old Marie, at least from the shoulders down, is likely turning in her grave right now.

Bob