Bismarck Tribune - North Dakota News - Mathern's plan is bad economics

Mathern's plan is bad economics

Jul 04, 2008 - 04:05:59 CDT

By JOHN ZIMMERMAN
Minot

Higher input costs. Lower demand. Lower profit margins - or even losses. Hmm. Doesn't sound like a good business to me.

Yet folks like the Democratic candidate for governor, Tim Mathern, think North Dakota should dump billions of taxpayer dollars into a state-owned oil refinery. Quite frankly, that's crazier than the sporadic talk over the years of the state running an airline - and I didn't think I'd hear anything to top that gem.

Disagree? I give you the latest figures from the state mill in Grand Forks. Officials expect a quarterly loss of about $3 million, while hoping for a break-even fiscal '08. The cause? Those pesky high input costs and flour buyers responding to high prices by buying less or switching to other varieties.

Tesoro, the firm operating the Mandan refinery, is illustrative of similar challenges in their respective business (the one Mathern & Co. think is a such a cash cow). Go look at their most recently quarterly "earnings" - the firm lost money. The primary reasons? High input costs and lower demand, exactly the same things currently plauging the state mill.

Conversely, Tesoro actually made money (a.k.a. profits) in the same quarter in 2007 when oil prices were nearly half what they are now. Wonder if Tesoro prefers $130 oil or $70 oil?

With all due respect to grain millers everywhere, the added complexity, daunting financial scale and overall risk of building and running an oil refinery are exponentionally more challenging than grinding wheat into flour.

Rather than wasting time discussing a state-owned oil refinery, what's really needed is for a number of Americans, starting with the proponents of this idea, to move to the front of the line for a course in remedial "Economics 101." I'd also recommend a follow-up course in "Capitalism 101."

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Comments

Senator Tim Mathern wrote on Jul 7, 2008 2:45 PM:

" The state does not need to own the refinery- my point is we need to add value to our oil by having it refined here. Senator Tim Mathern "

Wake Up wrote on Jul 6, 2008 12:17 AM:

" I am so tired of this rhetoric about privatization and capitalism. Without rules and regulations, corporate interests will dominate our lives and destroy that which we hold most important to our well being, our health, clean air to breath and clean water to drink.

As far as energy independence goes, we will never be independent of foreign oil. The only way that we might become energy independent is by developing more renewable energy resources.

Actually, the whole idea of the United States becoming totally independent from any commodity is ludicrous. Face it, we live in a world economy and nothing will ever change that, short of the demise of the human species. "

mike from mandan wrote on Jul 4, 2008 9:07 AM:

" Great letter John, Anytime the government, state or federal, get's thier hands involved with anything, thier bound to screw it up. Government should get out of the way with thier rules and strict regulations and let those that know best, do what they do best, Those out here that make this state and country work could resolve this fuel problem in short order by more drilling, not only here in north dakota, but in ANWAR, and the continental shelf, then let private companies build refineries, thus easing our dependence on foriegn oil. I agree that Matherns plan would be a disaster. and like you stated, look at the state mill and elevator. thier input costs are killing them, like tesoro's are. People just don't seem to get it. "

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