Exxon Weighs Chemicals Output Boost as EVs Threaten Gasoline Use

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(Bloomberg) — Exxon Mobil Corp., which operates one of many world’s greatest oil-refining networks, is making an attempt to be extra conscious of altering shopper calls for because the vitality transition gathers tempo. The modifications it’s contemplating embrace doubtlessly changing some gasoline manufacturing with chemical substances.

The oil large has lengthy pursued a method of upgrading refineries to increase manufacturing and make higher-value merchandise from crude oil corresponding to lubricants and plastic feedstock. But it surely now sees these initiatives doubtlessly serving to the corporate to maneuver away from conventional fuels, demand for which is more likely to wane in coming a long time.

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The technique, mentioned by this week by executives at a presentation to buyers and media, reveals how even Exxon, one of many main proponents of fossil fuels, is being compelled to reckon with a future during which electrical autos considerably eat into gasoline consumption.

Exxon has already lowered manufacturing of gas oil and high-sulfur petroleum at refineries in Singapore and the UK. Over time, it’s open to slicing output of gasoline, the main focus of the corporate’s refining enterprise since Henry Ford launched the Mannequin T practically 100 years in the past. The aim is to provide extra chemical substances, present in every little thing from paint to plastic, for which there are few low-carbon options.  

“We’re planning on modifying a few of that yield from gasoline to distillate and chemical substances feed,” Jack Williams, Exxon senior vp, mentioned Wednesday on the firm’s workplace in Spring, Texas. “We’ve bought initiatives that we all know we’d do to take these steps.”

Exxon will get most of its earnings from oil and pure gasoline manufacturing however refining has all the time been in its company DNA, proper again to its unique incarnation as a part of John D. Rockefeller’s Normal Oil, which was established within the nineteenth century.

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Refining permits Exxon to earn cash proper alongside the fossil gas provide chain, from the wellhead to the gasoline tank. However with conventional fuels corresponding to gasoline below menace from EVs, refineries worldwide are being compelled to adapt rapidly. Some European crops shut down throughout the pandemic, whereas others within the US switched to biodiesel. 

Learn Extra: Exxon Eyes $10 Billion Earnings Raise in Fuels, Chemical substances by 2027

Exxon desires to take a extra nuanced method by upgrading services to modify out and in of merchandise relying on demand. To provide an instance, an Exxon refinery in Singapore used to provide gas oil that offered for $10 per barrel beneath the value of Brent crude, however after a current improve, the ability produces lubricant base shares that promote for $50 above Brent.

Exxon has upgraded and added to its refineries at Fawley within the UK and Beaumont in Texas to provide extra diesel, which is used for heavy-duty transportation and is much less weak to competitors from electrical autos. 

“You simply have extra variables now as a result of vitality transition,” mentioned Jay Saunders, a pure assets fund managers at Jennison Associates, which has $186 billion below administration. “Having a high-quality refining asset with flexibility will likely be crucial.”  

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Exxon’s refining and chemical substances footprint is not less than double that of its Huge Oil opponents, doubtlessly making it extra weak to a speedy vitality transition, and particularly the expansion of electrical autos. However executives consider the potential for reconfigurations is way better than that of its friends, offering a possibility to revenue in a low-carbon future. 

“This actually permits us to pivot as demand evolves,” mentioned Karen McKee, President of Exxon’s Product Options division. 

Biodiesel is especially engaging to Exxon as a result of reconfiguring its current refineries prices about half as a lot as constructing a brand new plant, mentioned Neil Hansen, senior vp of product options. Demand for biodiesel, which is manufactured from vegetable oil or recycled restaurant grease, is anticipated to quadruple to 9 million barrels a day by 2050, he mentioned.

Exxon is midway by an eight-year plan to overtake its fuels and chemical substances division, which additionally includes slicing prices, bettering operational efficiency and promoting belongings that don’t make the grade. Exxon will function simply 13 refineries worldwide by the tip of 2023 after promoting 5 previously 4 years to concentrate on the most important and lowest-cost operations.

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Chemical substances will likely be key to the technique’s success. Exxon sees demand progress for its high-performance chemical substances at about 7% a 12 months, contrasting sharply with gasoline, which is anticipated to peak globally by the tip of the last decade. To maintain up with this demand, Exxon plans to construct a brand new devoted chemical plant each 4 to seven years, Williams mentioned.

The corporate’s refineries present a further means to make chemical substances, however they may concentrate on responding to shopper desire slightly than making an enormous wager on any explicit product, Williams mentioned. 

“We’re not going to do it whereas the demand remains to be there,” he mentioned. “We’re going to it at a time when the demand developments are clear and clients don’t want that gasoline.”

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