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 first time in memory, had an alternative choice in energy markets: fuels like wind power and solar energy.
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The Obama administration failed to pass a carbon regulation bill. But it had been far more successful in stoking the rise of alternative energy sources. The primary vehicle for this effort was the stimulus bill, which provided an unprecedented $90 billion in subsidies for renewable-energy sources. The bill also incentivized an additional $100 billion in private-sector funding. Just as the government nurtured fracking technology for many years, its renewable-energy subsidies helped make wind and solar power more affordable. And the subsidies were once again transforming the energy industry.
In 2007, renewable-energy sources provided only 6.5 percent of all the BTUs consumed in America, while fossil fuels provided 85 percent. By 2013, renewables provided 9.5 percent of the total energy, while fossil fuels provided 81.8 percent. (The biggest loser in the energy sector shift was coal, which was displaced by natural gas as a fuel for power plants.) This might seem like a small shift, but in commodities markets, even small changes can have broad ripple effects.
The Obama administration further compounded this effect by pushing for new fuel efficiency standards for vehicles, pressuring automakers to make a fleet that consumed less gasoline even as electric-powered cars became more affordable.
Even as Koch refined the Eagle Ford crude oil, signs of peak demand for gasoline were emerging across America. The energy industry consulting firm Turner, Mason & Co., which counted Koch Industries as a client, estimated that the rise of renewables would cause demand for finished petroleum products in the United States to fall by 0.1 percent on an average annual basis between 2016 and 2025. This low-growth environment posed a threat to Koch’s Eagle Ford play. If demand for gasoline weakened, prices would fall and profit margins would shrink, perhaps permanently.
Koch Industries employees saw this threat plainly. It was evident in Koch’s own backyard. Giant windmill farms were erected across the flat and windy state of Kansas, their development spurred along by state lawmakers. In Kansas, the political support for wind energy was bipartisan. Even the Republican governor, Sam Brownback, was enthusiastic about helping the wind industry expand in the state. Building wind farms and a new utility grid created jobs. The wind industry was a rare beacon of future growth in the state. Fracking hadn’t taken hold in Kansas, cattle feedlots were struggling, and farming could only support so many families.
Like twenty-nine states across the country, Kansas legislators passed a law requiring state utility companies to buy 10 percent of their power from renewable sources in 2011, increasing that level to 20 percent by 2020. As a result, wind farms were becoming more plentiful, and the cost of building them was steadily falling as the young wind industry improved its techniques. Renewable energy was on track to steadily displace fossil fuels in Charles Koch’s home state and elsewhere.
Charles Koch knew that such developments were not inevitable. If government policy was responsible for supporting renewable energy, then government policy could be changed.
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One of Charles Koch’s primary skills was identifying undervalued commodities. By 2013, it became evident that political power in the state of Kansas was an undervalued commodity.
The state was deeply Republican and still largely rural. This meant that most Kansas state officials—the occupants of the state house and the state senate—were elected during primary contests in their home districts. A state politician in Kansas might be elected by no more than a thousand voters during a primary race. Such elections drew a turnout level near zero and generated almost no media attention. It was common for a campaign to cost $10,000, on the upside.
Many Kansas state lawmakers were like Tom Moxley, a rancher from the tiny town of Council Grove, about a hundred miles northeast of Wichita. Moxley was in his midsixties when he ran for a seat in the statehouse in Kansas’s Sixty-Eighth District. He figured it was his time to do some public service after decades of running a small business.
Serving in the Kansas statehouse was a little more serious than joining the local volunteer fire department, but not by much. The 125 members of the Kansas House convened every January for a legislative session that usually ended in May. When they were in session, they met in the state capitol building in Topeka, a sleepy city about an hour west of Kansas City.
Moxley joined the legislature in 2007. Over the next few years, he learned how things worked. Then, starting around 2011, he watched Koch Industries transform everything. A central focus of Koch’s efforts was beating back the mandates to support renewable energy. Because Moxley sat on the House Energy and Environment Committee, he had the chance to see Koch’s strategy play out firsthand. In 2013, a string of experts descended on the capitol in Topeka to testify about renewable energy. Moxley called these scholars “heavy hitters”—the kind of high-profile people who rarely showed up for a statehouse hearing. The scholars came from think tanks like the Cato Institute in Washington, and they testified about the deeply damaging economic effects of wind power and government mandates.
Renewable-energy mandates were passed in Kansas in 2009 as a bipartisan compromise. The state was about to approve construction of a new coal-fired plant, and the mandates to buy renewable energy were included in the approval. The concerns were economic as much as environmental—Kansas generated the vast majority of its power from coal and was being hurt by high coal prices, even as neighboring states were getting cheaper energy from natural gas. Wind power was getting cheaper by the year, thanks to state mandates across the country and stimulus money from Washington. Kansas wanted an alternative to coal.