Advertisement
OPINION

Updated February 4th, 2024 at 16:13 IST

Exxon has a chemical escape hatch

Two-thirds of petroleum used in the United States goes to transportation, according to the Energy Information Administration.

Robert CyranRobert Cyran
ExonnMobil US operations
ExonnMobil US operations | Image:ExonnMobil
Advertisement

One word: Plastics. Exxon Mobil said on Friday it earned $36 billion in 2023 thanks to high oil prices. But profit was down 35% from the prior year and the future appears dim for fuel demand. Luckily for the $412 billion company, its petrochemicals business is in the opposite position.

Two-thirds of petroleum used in the United States goes to transportation, according to the Energy Information Administration. The rapid growth of hybrid and electric engines, which powered 16% of cars sold last year, means drivers’ demand for oil is likely to start falling soon, dinging Exxon's core business.

Advertisement

Meanwhile, the company's chemicals unit has already weathered a rotten year. Chief Executive Darren Woods said that the business has declined to well below the bottoms of previous cycles. That’s thanks to supply from new facilities brought online, such as Exxon’s recently completed $2 billion expansion in Baytown, Texas. The chemicals division’s $2 billion of profit in 2023 was down some 40% from the previous year.

Yet its future is bright. Exxon expects chemical demand to grow 20% faster than global GDP over the long run. The company plans to triple what it earned from chemicals and refining in 2019, up to some $16 billion in 2027. Fuel demand will go down, but excess capacity in fuel refining can be employed to make other finished products or feedstocks that are in turn used to make in-demand materials. Production of plastics, for example, has grown more than 10-fold in five decades. And developed countries use about 20 times more plastics on a per capita basis than poor nations, implying plenty of catch-up demand. Of course, this business is still small compared to oil and gas production, where Exxon earned $24 billion in 2023. And chemicals, especially plastics, have environmental concerns that may grow over time. Given Exxon’s bigger problems, though, the business offers an escape hatch.

Advertisement

Context News

Exxon Mobil said on Feb. 2 that it earned $7.6 billion in the fourth quarter, and $36 billion in 2023. The American energy firm earned $12.8 billion in the same quarter a year ago, and $55.7 billion the previous year.

Advertisement

Published February 4th, 2024 at 16:13 IST

Your Voice. Now Direct.

Send us your views, we’ll publish them. This section is moderated.

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Whatsapp logo