What do the pharmaceutical and petrochemical industry demises have in common? Surprisingly, quite a lot! In both cases local planners did not see the need to plan for contingencies, nor did they realize the risks, which entailed an economy with little diversification. Also, local exporting entrepreneurs were neither fostered nor encouraged, and solutions were dependent on federal intervention. Clearly, we did not learn from our historical examples.
The 1973 OPEC oil embargo created havoc in the local economy. Puerto Rico Industrial Development Company, leader of the island’s economic development at the time, commissioned a study in order to plan for alternative avenues for growth. Not surprisingly, the report emphasized the need to add more resources to this industry, thereby ignoring the obvious dangers posed by the Organization of the Petroleum Exporting Countries.
According to the report, to improve employment opportunities in Puerto Rico, additional industrial activity was required, and the petrochemical industry offered a base for industrial development by increasing the oil refining capability of Puerto Rico’s existing petrochemical industry. To achieve this, a new deep-water port would be required.
At the time, most of the imported oil came from Venezuela. Additional oil for the industry would have to be supplied by the Middle East, an unreliable supplier due to their situation, specifically, the Yom Kippur war between Israel and the Arab states. The only practical and economical means of transporting oil over the 12,000-mile distance from the Persian Gulf to the U.S. was using very large crude oil carriers, tankers weighing more than 200,000 tons. However, there were no deep-water ports capable of servicing these tankers in the U.S., hence the need for an island such as Mona to build such a port.
Puerto Rico’s competitive advantage lay in its location, the fact that the trend in the U.S. oil industry was to create offshore refineries for its expanding market, and recently enacted legislation regarding imports. Therefore, the island was in a particularly favorable position to capitalize on this opportunity, and capture a substantial part of the U.S. East Coast market.
The first refinery in Puerto Rico started operating in 1955, followed by a number of petrochemical plants, built mostly during the 1960s. Since there is no local crude oil production, the industry is dependent on imported oil and on federal regulations that give the island certain advantages when compared to other areas of the U.S.
The petroleum refining and petrochemical industries constituted the fourth largest group within the manufacturing sector, surpassed only by the apparel, food and electrical groups. At the time, the petroleum industry represented about $1.3 billion in plant expansion with a direct employment of 7,800 and possibly twice that number of indirect support jobs. Average hourly earnings ranged from 150 percent to 200 percent of the average for all manufacturing.
In 1973, the heart of the petroleum/petrochemical industry was formed by three refineries with a combined processing capacity of about 250,000 barrels a day (BPD). These were: CORCO in Peñuelas with a capacity of 125,000 BPD, Sun Oil Company in Yabucoa with a capacity of 85,000 BPD, and Gulf Oil Corp. in Bayamón, with a capacity of 40,000 BPD. Gulf Oil constituted only 16 percent of the total refining capacity of the island.
Many potential sites were evaluated for the deep-water port before settling on Mona. Vieques was rejected because most of the island was under the control of the U.S. Navy and because oil spills would affect much of the east and possibly the southeastern coasts of Puerto Rico. The Aguirre-Jobos estuary was also considered. However, the deep-drafts berth would be almost eight miles offshore. The site was originally dropped, but reinstated at the request of PRIDCO, due to the large amounts of government land available. Ponce’s Cabullón Point, with the deep-water berthing area to the northwest of Caja de Muertos island, is one of the best in Puerto Rico from a marine or port standpoint. The main disadvantage was its close location to the city of Ponce and the potential for further air pollution. Also considered were Guayanilla, Añasco, Rincón, Aguadilla, and Arecibo.
The island of Mona was recommended, as it rated highest for the development of other heavy industries, such as the metallurgical. It had almost unlimited room for expansion and presented an excellent potential for a very large oil-fired thermoelectric plant due to the cheap residual fuel from the adjacent large refineries. The power generated by this thermoelectric plant could then be transmitted economically by submarine cable to Puerto Rico. Not surprisingly, there was strong opposition to this industrial development by the professional environmental and scientific community.
Three years after this initiative by PRIDCO, the economic development of Puerto Rico was rescued by federal intervention, which granted generous subsidies to the manufacturing firms established on the island. These lasted for the next two decades, 1976 to 2006. Now, Puerto Rico faces a challenge similar to that of 1973. Much like in the previous petrochemical crisis, Puerto Rico had not planned for contingencies, fostered local entrepreneurship, or diversified the economy. This time around, given the challenges faced by the U.S. economy, we will probably be left to face these challenges alone. Some of the answers lay in the questions our local planners most likely considered in 1973, our economy has to be diversified and local entrepreneurship must be fostered and encouraged.