The fate of many oil producers was sealed in stone when the global community pledged to replace fossil-fuel vehicles with zero-emission battery electric vehicles. While it was unlikely that these companies would fold as the world moved away from fossil fuels, oil producers would have to pivot their entire business strategies to stay in line with global climate change goals.
Exxon Mobil, one of the largest international publicly traded gas and oil companies, is one of the fossil-fuel producers adjusting its strategy to fit in an EV-dominant future. The Houston, Texas-headquartered company recently announced that it would shift from its long-time strategy of expanding and optimizing production to create high-value, oil-based products to one that considers changing consumer demands.
Electric vehicle adoption may still be quite low compared to conventional vehicle purchases, but experts predict EV adoption will explode over the next decade. EV prices are already dropping due to market oversupply, and continued improvements in EV battery production are expected to make electric cars more affordable.
Oil processing giant Exxon Mobil has already cut back on high-sulfur petroleum production at refineries in the United Kingdom and Singapore as it begins adjusting to a carbon-neutral future. The company also says that it is willing to reduce its gasoline output over time and focus on producing commonly used chemicals that have limited low-carbon alternatives.
According to Exxon senior vice president Jack Williams, the oil producer plans to modify some of its gasoline yield to produce chemicals used in everything from plastic to paint and distillate. Such a pivot would allow Exxon Mobil to remain within the oil production field with little impact on its bottom line as the world moves away from its core products, fossil fuels.
While Exxon now draws most of its profit from natural gas and oil production, its corporate DNA has always been based on refining. The over-a-century-long focus on refining allows Exxon to earn revenue at nearly every stage of the supply chain. As such, Exxon Mobil and other refineries around the world have no choice but to adapt to an electric future if they wish to remain in the refining segment.
Some refineries in Europe were forced to close during the coronavirus pandemic while some U.S. refineries turned to biodiesel to maintain profitability. Exxon, on the other hand, will adopt a nuanced strategy that involves updating its refineries to produce in-demand products. For instance, a refinery in Singapore that produced fuel oil was upgraded to produce more lucrative lubricant base stocks.
Additionally, the company upgraded refineries in Texas and the UK to produce diesel for heavy-duty transportation as the segment is more resistant to competition from EVs. Exxon is also four years into an eight-year-plan to revamp its chemicals and fuels division to optimize performance and cut costs.
The planned pivots that the likes of Exxon Mobil see in the works is testament to the fact that EV manufacturers such as Nikola Corporation (NASDAQ: NKLA) have a market to serve for decades to come if they play their cards well.
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