per barrel—nearly triple the next-highest rate of almost $6 a barrel in Europe. These profit margins were partly the gift of fracking, which delivered copious amounts of cheap oil to refine. In a double stroke of good luck, fracking also cut the cost of natural gas, which refiners used to power their plants. US refinery profits pulled far and above those found elsewhere in the world.
If Koch Industries reaped the average level of profit on refining oil at Corpus Christi that year (and the company claims to be above average in this regard), and operated the refinery for 350 days of the year at 280,000 barrels per day (both conservative estimates), then the company would have earned $1.2 billion in profits from that refinery alone.
The profit margins fell sharply after 2011, sinking to around $13 per barrel in 2012 and then $12 in 2014. But the profit margins never fell close to zero, and were always well above margins for refineries around the world.
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Koch enhanced the profitability of its Corpus Christi refinery complexIII by using its trading desks in Houston. From their vantage point, Koch’s traders could see the reality of the US fossil fuel system, which was a fragmented network held together by aging infrastructure. There was no national, let alone global, price for oil and gasoline. There was only the constellation of opaque nodes where real oil and gasoline were bought and sold, and the tanker farms, gasoline terminals, and import piers where barges were loaded and unloaded. It wasn’t easy to get fossil fuels from one region of the country to another. Markets in California were hemmed in by the state’s clean-fuels standards, locking in high prices there. Markets on the East Coast were dependent on a single, aging pipeline called the Colonial Pipeline, which carried gasoline from the Gulf Coast all the way to New Jersey. (Koch Industries was the majority owner of the Colonial.) This fractured market provided abundant opportunities for trading, and Koch excelled in executing on them.
Corpus Christi became the hub for a number of trades that were, in the eyes of traders, simply elegant and beautiful. Koch bought the cheap oil that was piling up in terminals around the Eagle Ford Shale, the superlight crude that only a limited number of refineries could process. Then the traders sold refined gasoline products into markets of thriving metropolitan areas where gasoline supplies were tight, such as San Antonio and Austin, Texas. Both of those cities were growing, thanks in part to the fracking boom in Texas, and the growth locked in strong demand for gasoline. Neither city had a robust public transportation system and both of them were defined by sprawling networks of highways that conveyed motorists from far-flung suburbs to work every day.
In this environment, the Corpus Christi refinery became a second Pine Bend, an asset that was located right in the center of a massive market dysfunction that produced supranormal profits. In the understated words of Koch’s former oil trader Wes Osbourn: “They have an asset that’s advantaged on a lot of their competitors.”
Koch traded around Corpus Christi in other ways, maximizing the advantage that it had earned by being the first to build pipelines deep into the Eagle Ford. The wave of ultralight oil was too much even for Koch to handle. It exported what it could. Then it spent hundreds of millions of dollars to upgrade the Corpus Christi refinery with machines that processed even higher amounts of sweet crude, raising its capacity to roughly 305,000 barrels a day. In July of 2014, Koch Industries paid $2.1 billion to buy a newly built chemical plant in Houston that processed light crude oil into a chemical called propylene, used to make industrial chemicals and plastic products such as films, packages and caps. The propylene plant was another reservoir to capture the influx of light crude and provide another market in which Koch Industries could grow.
The trades that could be built around Corpus Christi and Eagle Ford Shale seemed impervious to loss, and they returned enormous profits even as oil prices fell and the economy moved sideways from 2011 through 2015.
There was, however, one growing threat to Koch’s oil refining operations. Oil industry analysts started to worry about something that seemed incomprehensible in 2008 when oil was scarce. The fracking boom raised the prospect that the era of “peak oil” might be replaced by an era of “peak demand.” Even though it was cheap, demand might fall. Consumers, for the