Oil News Special

A quick snap shot of what is going on for the month

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The oil industry is in upheaval as I have written about before and I wanted a dedicated place to write about it so I am doing a special edition newsletter on the first Wednesdy of every month this year. Let me know what you think in the comments or give me a like.

Petroleum Engineering Majors Might Need To Pivot

Clifford Krauss wrote in The New York Times about how the decreased revenues from oil this year have made what once seemed like a somewhat stable industry more uncertain. Petroleum engineers and chemical engineers who once thought they might have jobs in the oil industry in the spring are finding that their majors might not be as applicable to the real world as they once thought.

Welcome to world of everyone else petroleum engineers.

I think that the skills petroleum engineers, which to my knowledge is close, but more specialized than a chemical engineer, should be applicable to other parts of the chemical industry. Before engineers figured out how to separate and refine petroleum it was just this black mixture of foul smelling stuff that wasn’t even very good to burn.

Guess what else is a smelly hard to separate and difficult to use mixture of aliphatic, aromatic, and smelly substance that is currently burned—Lignin. Petroleum engineers, this is a good chance to go work for some lignin start-ups doing separation and electrolysis of lignin. Figure out how to use that stuff and you will be golden.

Try to do well by doing good. Plenty of problems out there to solve.

ExxonMobil Expects to Chemical Margins to Boost Business

The oil giant is also expected to take a loss nearing $18-20 billion on upstream assets. The good news is the chemical profits are expected to increase by about $200-400 million for the 4th quarter. That is a fraction of the loss on the upstream assets, but may be a path forward for ExxonMobil. The New York Times already asked the question of will ExxonMobil will survive with the current leadership.

I think Exxon starts to look for bolt on acquisitions in chemicals that are immediately downstream from oil that will also benefit from Exxon’s already very low priced oil. The closer these acquisitions are to their refineries the better.

Shell Is Also Signaling a Poor Quarter

Sarah McFarlane wrote for the Wall Street Journal that Shell is also expecting a bad quarter despite the slight uptick in oil prices. Shell has also been on a bit of a roller coaster ride in that they are planning to unveil their bold sustainable vision, but the executives in charge of leading that change have been abandoning ship.

As vaccines start to roll out and herd immunity is built into populations it seems the oil executives are just crossing their fingers and praying that in the next few months we will see if demand for gasoline come back with a lot of white collar commuters resuming their normal schedules.

If that is their strategy then I would be upset as a shareholder (I might actually be a shareholder through an index fund).

The way we work seems to be changing permanently primarily because it seems like it might actually benefit both shareholders and workers. Office jobs that can be done either fully remote or on a hybrid schedule means less time in traffic and less demand for gasoline. Need to meet with someone for an hour in California? Seems like Zoom or Microsoft Teams is good enough these days. Why get on a plane when you don’t have to? Further, electric cars will continue to chip away at the demand for gasoline and keep oil prices low despite refineries getting idled.

Neste Completes First Industrial Run of Mixed Plastic Pyrolysis

The Finnish oil company has been in the news quite a bit lately due to their push to run pyrolysis on mixed plastic waste to create petroleum like products (petroleum engineers, this might be a good path forward) that can be used for fuel, but ideally would be used in higher margin businesses like chemicals, specifically making plastics.

The good news is Neste ran an industrial scale trial of the pyrolysis process with success. While this is still far from commercial success it is still good news when chemical processes are demonstrated at scale. I am sure there is a lot of work to do on cycle time (if its a batch process) and/or making this a fully continuous process. I wrote about pyrolysis or chemical recycling of plastics in my series on how to solve the plastic waste problem here if any newer readers want to understand this process more.

Neste has also recently acquired a minority stake in Alterra Energy and seeks to grow plastic to oil technologies and capacities across Europe and North America. From the press release:

The companies are working together towards a global rollout of Alterra’s liquefaction technology with a strong initial focus on Europe, a leading market in the global transition towards making plastics value chains fully circular. With this, the companies aim to accelerate the adoption of chemical recycling and develop capacity to turn hard-to-recycle plastic waste into high-quality, high-performance polymers and chemicals. The collaboration of the companies supports Alterra Energy’s target of commencing the construction of a state-of-the-art liquefaction site in Europe during 2021.

Alterra’s existing industrial-scale waste plastics liquefaction plant in Akron, Ohio produces commercial volumes that can already be refined and upgraded into high-quality feedstock for plastics and chemicals. This, together with Neste’s refining capability, enables sustainability-oriented brands globally to start introducing recycled content into their products and offerings.

I think Neste is a few years ahead of their larger counterparts in Shell, BP, and ExxonMobil.

BP Shareholders Pushing Company On Targets Set By Paris Climate Agreement

If companies exist to maximize shareholder value according to the Milton Friedman then BP’s shareholders want it to adhere to the 2015 Paris Climate accords and become a more sustainable company. BP has tried in the past with biofuels and pulled out, closed a bunch of plants, and shuttered plans opening next generation manufacturing. Biofuels make sense economically when oil prices are sky high, but with low oil prices and low demand it is uncertain if/when oil prices will go back up.

BP signaled it will be working with their activist shareholders on developing a reduced emissions plan and figuring out how to make their business more sustainable and lower emitting. Their plan appears to be based on pivoting to wind, solar, natural gas, and hydrogen. BP also recently closed the sale of their chemicals business to Ineos so the strategy of moving downstream into chemicals is not a move that BP would consider under current leadership.

Wind, solar, and natural gas all seem like rational and obvious options, but the hydrogen bet seems like it will be really difficult to execute.


Oil’s future seems uncertain right now. The Economist published a piece about how there seems to be divergent strategies at the big oil companies with ExxonMobil pushing for pumping more oil while companies like BP and Neste look to divest from traditional businesses. Tesla sold half a million cars in 2020 that do not use gasoline, but still use rubber tires. Rubber, as my readers might know comes from oil so the future of oil to me is that it will be here for a very long time, but maybe not at the scale we have come to know.

A prediction I made back back in 2020:

Oil companies will either look to diversify and grow their chemicals business or do bolt-on acquisitions of a chemicals business to grow revenue in the next 5-10 years. Extracting oil, refining it, and turning it into gasoline will only be viable for about the next 15-20 years. An average product development cycle for a chemical company is anywhere from 2-5 years so making acquisitions now or in the near future would give oil companies enough time to get their businesses aligned for a post-Covid and rise of the EV world.

Hopefully, I’ll be right on my prediction. I will be the first to admit I am wrong here.

Tony

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The views here are my own and do not represent those of my employer nor should they be considered investment advice.