You called it – what I learnt thanks to your emails

Thanks for all your emails on our dive into renewable energy and the demise of the oil nations.

The general consensus seems to be that, yes, renewables are where the smart money is going. And yes, oil’s days are numbered. But it still has some way to go yet.

And a lot of readers picked up on a new trend in the oil industry, away from fuels and towards chemicals.

Among some other great points, GW said:

A possible saviour for the oil nations might be a complete reversal of the current situation and actually stop the export of crude oil. Keep it in the region and use the current wealth to build major chemical plants and have the Middle East as the chemical factory for the world. It might enable the current oil nations to at least survive economically in a world where oil is no longer an energy source but simply a building block in the world of chemicals.

And PH pointed out:

The world is de-carbonising. That means less oil/gas/coal is being burnt in the world. Eventually it will not be burnt at all except in emergencies. However oil and gas will continue to be needed, albeit in far less quantities for a multitude of other industries. Pharmaceuticals, chemicals, plastics (again these should be reduced as well) all use oil (or gas that is liquidised to oil) so there will be a demand. 

Other uses will be found for oil as it can be split down into many parts.  The industry won’t die with the end of fossil fuel burning, it will be transformed into a feedstock possibly earning as much as it does being burnt but of course that means reserves will last longer.

Well, it’s fair to say Exponential Investor readers are a smart bunch. This is exactly what the oil industry is doing. It’s moving more and more into producing chemicals while moving away from fuels.

“New-build refineries are integrating petrochemical production at a scale that we really haven’t seen before” – Bryan Glover, general manager at Honeywell UOP

In March this year, Chemical & Engineering News (C&EN) published a piece all about this transition, which raises some good points:

By 2030, demand for gasoline and other fuels will be on the decline. The petrochemical sector, in contrast, still has room to grow. Oil companies and engineering firms have noticed. They are installing new equipment and even designing new processes to seize on the trend.

The trend is so strong, says Bryan Glover, general manager of Honeywell UOP’s process technology and equipment business, that internally, UOP uses the term “refinery of the future” to refer to flexible technologies that enable refining complexes to make a wide variety chemicals. “The best outcomes result when you can match the molecules to the best market opportunities,” he says.

The problem for these oil producers is that the demand for chemicals is currently nowhere near the demand for fuels.

C&EN points out that this switch is already impacting markets:

For example, Chang says the Chinese p-xylene projects will put out a combined 11.8 million t annually. China imports 11 million t of p-xylene per year, meaning today’s South Korean, Taiwanese, and Japanese suppliers will need to find new markets.

But oil producers don’t really have a choice here. With more and more countries switching to renewables, more and more cars going electric, and worldwide condemnation of fossil fuel burning, making chemicals with their oil seems like the only way out.

But even on this front the oil nations are getting competition from renewables. The bio-based plastics industry is on a similar trajectory to renewables. Only it’s not as far along.

If you take the same line of reasoning that oil, by its nature, will one day run out, it makes sense that one day bio-based chemicals will take over. The question is when that will happen.

Given that supply of oil-based chemicals is already outstripping demand, it’s probably going to be a long time yet until bio-based chemicals replace them.

And the oil nations are clearly weighing up all these factors as they look to the future. But I guess sometimes all you can do is play the hand you’ve been dealt.

My colleague Eoin Treacy believes that many of these nations are already on the brink of collapse.

Eoin believes, “Saudi’s bleak future is not simply a case of ‘more unrest in the Middle East’ – the same old problems rearing up again. It’s not politics driving this revolution… it’s energy.”

Three massive breakthroughs in energy technology, to be specific, which he shares in this report.

As Eoin says, “understand the forces driving this upheaval today, and I believe you stand to make gains of 317% and 1,997% over five years.”

You can find out how to do that here.

If you have any interest in renewable energy, electric cars and the fall of the oil nation, I think reading Eoin’s report will be well worth your time.
Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Commodities

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