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Big Oil Doubling Down on This Investment

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With the shale revolution generating massive new oil and gas supplies, big oil companies are looking for ways to maximize returns on the glut. For the biggest oil majors, like ExxonMobil and Shell, investment in petrochemicals, especially plastics, seems like the best route to increased profit. Spending on new petrochemical projects is taking off in the U.S. Christopher Matthews writes:

Companies are eagerly launching new U.S. petrochemical projects—310 in all according to the Chemistry Council—because at a time of uncertainty over when demand for transportation fuels may peak, due to electric cars and ride sharing, the world’s appetite for plastics is expected to rise for decades to come.

That demand typically grows at least 1.5 to 2 times as fast as global gross domestic product, according to industry analysts. That theoretically makes petrochemicals one of the safer fossil fuel investments, though skeptics question whether the margins on U.S.-made plastics can last.

The new investment will establish the U.S. as a major exporter of plastic and reduce its trade deficit, economists say. The American Chemistry Council predicts it will add $294 billion to U.S. economic output and 462,000 direct and indirect jobs by 2025, though analysts say direct employment at plants will be limited due to automation.

For energy companies, the build-out creates a new market for byproducts they previously had little use for. Drillers have been flush for years with the raw materials but have left them in the gas stream to be burned off, because no one wanted them. A spike in demand in coming years could make drilling more profitable.

Petrochemical companies are betting the price of the feedstocks—their most costly expense—will remain low for years due to shale drilling. As a result, net U.S. petrochemical exports, which include plastic as well as products such as fertilizer, adhesives and solvents, will grow to $110 billion a year by 2027 from $17 billion last year, according to IHS Markit . That would come close to the value of Saudi Arabia’s current annual oil exports.

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Dick Young

Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.