Extracting oil isn't easy, but someone has to do it for now

The August Oil and Gas issue

Welcome to the Oil and Gas August issue. The majority of chemicals and polymers come from oil so understanding the oil and gas market helps inform the chemistry market. There are a couple of themes that I wanted to cover today that I think speak broadly to what is happening in the industry based on what I’ve read and where I think the industry is going in the future. Sorry for typos, I’m kind of pressed for time these days.

The World Knows This Is a Risky Business

The oil and gas industry is staying in the public eye for the consequences of doing business. Most recent examples are the gas leak and fire at a Pemex rig in the Gulf of Mexico that was described as a scene from Mordor (see Lord of The Rings). Apparently, there was some controversy over Pemex declaring this a spill. I suppose you could call it an “uncontrolled release and subsequent deflagration.” 

My guess here is that the Pemex people contend that it’s not a classic spill in the sense because it caught on fire and because it's a natural gas pipeline this is more akin to an unplanned flaring event? However you look at it this is not a good look for the industry, but at least the methane got burned and transformed to carbon dioxide. I wonder how many uncontrolled releases and deflagrations happen in more remote locations? I believe the regulation of Pemex and the oil extraction business would fall under the Mexican equivalent of the EPA—SEMARNAT.

In general I think the Environmental Protection Agency (EPA) is wonderful, but I think they have faced years denigration and budget cuts. The New York Times reported on some chemicals that are used in fracking, which could be perfluoroalkyl substances (PFAS) or break down to form PFAS. From Hiroko Tabuchi’s reporting: 

There is no public data that details where the E.P.A.-approved chemicals have been used. But the FracFocus database, which tracks chemicals used in fracking, shows that about 120 companies used PFAS — or chemicals that can break down into PFAS, the most common of which was “nonionic fluorosurfactant” and various misspellings — in more than 1,000 wells between 2012 and 2020 in Texas, Arkansas, Louisiana, Oklahoma, New Mexico, and Wyoming. Because not all states require companies to report chemicals to the database, the number of wells could be higher.

What are perfluoroalkyl substances you ask? Imagine something like oleic acid, but instead of hydrogens bonded to carbon we have fluorine instead. Fluorine is somewhat unique in that it has an amazing bond to carbon, which chemists might refer to as bad leaving groups, compared to other halogen atoms and in order of being able to leave a carbon atom our order (worst to best in general) Fluorine < Chlorine < Bromine < Iodine. Halogenated organic chemicals have a lot of uses including repelling water, anti-stick, fire retardancy, and as intermediates for synthesis of other chemicals.

Teflon is probably the best example of a fluorinated polymer being useful, but it’s difficult to process. Processing aids such as perfluorooctanoic acid (PFOA) and other newer technologies are used to help get Teflon (poly(tetraethylene)) into usable applications. When DuPont had PFOA leaking into ground-water they got into big trouble. This brought the issue of PFAS chemicals to the public eye. Here is the patent mentioned in the NYT article for those intereted (Thanks BG for the find).

The thing about fluorinated carbon chains is they are great water repellents or very hydrophobic. To make a surfactant you need hydrophobic (water repelling) and hydrophilic (water loving) characteristics in a molecule. For common household surfactants we might use something like sodium dodecyl sulfate where the dodecyl refers to hydrocarbon chain (hydrophobic) connected to a sodium sulfate group (hydrophilic). The issue with ionic surfactants is that they are quite toxic to a lot of microorganisms due to being able to disrupt the cell walls and this is why we wash our hands with soap.

I don’t know that much about fracking, but I do know that phenolic resin coated sand has been used as a proppant to keep fracked wells open and oil + gas coming out of the well. Phenolic resins are relatively cheap and are more hydrophobic (oil loving) than sand, but with oil prices nowhere near the prices before 2016 I’ve heard it’s difficult to justify the use of resin coated sand. As for the actual fracking fluid having a surfactant present I’m guessing it enables the oil and gas to be transported through the water and the nonionic part is important for aquatic toxicity issues (1-12 mg/L/96 hours).

While we know that the business of extracting, refining, and using oil as a fuel has increased carbon dioxide release to the atmosphere and has the potential to release other chemicals to the environment, the rest of the world is attempting to move on.

The Rest Of The World Is Trying To Moving On

The European Union announced big plans on transitioning their economy away from fossil fuels in mid-July. The plan broadly speaks to transitioning energy generation away from coal, imposing tariffs on products that have large carbon footprints, phasing out internal combustion car sales, and just making carbon intensive products and processes more expensive. The EU is seeking to mitigate much of the issues I wrote about above by raising prices because much of the oil industry has some externalized costs somewhere. The higher prices of the incumbent technology makes newer technologies that are more expensive due lack of scale more competitive options for consumers. Erlanger and Sengupta report:

The proposals, if passed, would see the last gasoline or diesel cars sold in the European Union by 2035; require that 38.5 percent of all energy be from renewables by 2030; increase the price charged for carbon emitted to make the use of fossil fuels increasingly expensive; and financially assist those most affected by potential price increases.

The carbon border tax could not only shake up global trade and invite disputes over protectionism, but it could also create new diplomatic fault lines ahead of the Glasgow talks.

If this sounds like it will be painful to implement then trust your instincts. I expect that the EU has the stomach to do this based on what I’ve been reading over the last few years and it’s citizens seem like they are willing to pay the higher prices. I suspect that their leadership if they are successful will provide a blueprint for the rest of the world to follow.

While the 2Q2021 financial results for most oil companies speak to a return to normal, Marathon Oil provided guidance that there will likely be reduced demand in 3Q2021. The issue that Marathon cites is the Delta variant and as I write this from Massachusetts I’ve noticed more people wearing masks inside stores despite the state having one of the highest vaccinated populations in the United States. The concern of breakthrough infections and higher rates of infection of the Delta variant is prevalent. 

I haven’t gone through more of the 3Q2021 guidance from other oil companies, but I suspect that everyone is concerned about the Delta variant because oil demand is global. If the economies of foreign countries come to a halt because of the Delta variant and a lack of vaccines then this will hurt more precautions being re-implemented in the United States. 

If there is a Covid-19 vaccine available to you and you haven’t been vaccinated yet then I suggest that you should get vaccinated. I read this article from Alabama magazine about Covid-19 patients asking for the vaccine: 

“I’m admitting young healthy people to the hospital with very serious COVID infections,” wrote Cobia, a hospitalist at Grandview Medical Center in Birmingham, in an emotional Facebook post Sunday. “One of the last things they do before they’re intubated is beg me for the vaccine. I hold their hand and tell them that I’m sorry, but it’s too late.”

The rest of the article paints a grim picture and I’m happy to have received the Pfizer-BioNTech vaccine. I’m thankful that many of the people in Massachusetts have also been vaccinated. I want to see Top Gun in theaters.

Tony