Pennzoil Oil City tank explosion and facility

The lecture's central externality example. A woman welder killed by a 1920s riveted-tank explosion at a Pennzoil refinery in Oil City, PA (downstream of Titusville). Tom's argument: Pennzoil couldn't afford to *shut down* the small money-losing refinery because environmental cleanup liability for ninety years of soil oil contamination would have cost more than continued operation. Frames the regulatory/environmental externality concept.

I'm going to give you a sort of homework assignment — you don't have to turn it in. One time, in the early 90s, I was asked to go look at an explosion that occurred and killed a woman welder, threw her across the river when this tank blew up that she was welding on, at an oil refinery in Oil City, Pennsylvania. Anybody from Pennsylvania, western Pennsylvania? Oil City — what's it near? Nothing, right. But what's north of it? Titusville. You ever heard of Titusville? What happened at Titusville in the 1850s? Edwin Drake drilled for oil. First oil well in the world, in Titusville. Ever heard of Pennsylvania Oil Company, Pennzoil? This was a Pennzoil refinery just down the river from Titusville, where they first discovered oil.

EPA hazardous waste site externality. Tom uses the refinery to illustrate why old, inefficient facilities continue operating: shutdown triggers cleanup liability. Late-1990s consulting visit.

The example I like to give of the externality of pollution — the rules have changed over the years. I had an explosion in an oil refinery in Oil City, Pennsylvania. Anybody ever been to Oil City? It's up in the northwest corner. It's just down the river from Titusville. Anybody know what Titusville is famous for? It's where Edwin Drake discovered oil in 1856. That was the beginning of the drilling for oil. Otherwise they used to find oil bubbling up out of the ground. Anybody know where? It did occur in Texas. I used to always wonder why the Strategic Naval Petroleum Reserve, even back in 1900, was in Prudhoe Bay, Alaska. Who was drilling for oil in Prudhoe Bay, Alaska in 1900? Nobody. It was just bubbling up out of the ground. Someone knew there must be something underneath the ground if it's just bubbling up. A lot of the year it didn't bubble up in Prudhoe Bay, but they knew that there was oil on the ground.

The lecture's central developed case. A welder was killed when a tank in the tank yard exploded. The forensic visit revealed that the ground was saturated with oil to a depth of two feet from ninety years of routine spills. Tom's insight, arrived at over breakfast the morning after, was that Pennzoil's continued operation of the dilapidated refinery was rational under externality pressure: closing it would convert it to a Superfund site and trigger taxpayer-then-stockholder cleanup liability. The refinery was eventually closed.

I'll give you one more economic externality. Back in the mid to late 90s, I got a call because a woman was welding on a tank at the Oil City refinery of Pennzoil. This is a picture postcard from around 1910 of the Oil City, Pennsylvania refinery. It's just down the river from Titusville, where Edwin Drake discovered oil and drilled for it in 1856. So this was a hundred-year-old refinery when I went to visit in 1996. It was ancient, right there on the river. They were welding on one of the tanks in the tank yard.