There are several things worthy of comment today. First, the math looks wrong in the Biden EV executive order, especially when combined with tighter fuel efficiency standards that are also on the table. The US consumes around 340 million gallons (approx. 8.1 million barrels) of gasoline a day and a reduction of 340,000 would only be a 1% reduction by 2030, even assuming growth in driving over the next 10 years we would expect the fuel standards and EV introduction to have a much more meaningful impact if successful. We will write more on this is our dedicated ESG and climate work.
Source: EIA, August 2021
Separately, Continental’s announcement that it will use recycled PET in tire production is great for the recycled PET sellers as well as Continental, but it is not good news for the PET bottlers as it takes recycled products out of the loop and limits the volumes that the bottlers can get hold of. If Continental is taking a stream of rPET that cannot be upgraded to food quality it will not matter, but we doubt that the recycling world has that level of segregation. However, it may address the great imbalance in rPET, which is the large-scale manufacture of pre-form bottles in Asia and other parts of the world that are shipped to Europe and North America. The rPET is in the countries that consume the bottles while the bottle capacity is often on the other side of the world. If the surpluses or rPET in the west are mismatched with the demand for local bottle production, rPET will remain in surplus and continue to attract other end-users.
Lastly, we believe that the ExxonMobil headline is the company “testing the water” and in our view, it is exactly what ExxonMobil should be doing. The company has such a big negative target on its back these days that it cannot afford another major misstep as it seeks to articulate a strategy that better aligns with what many stakeholders are looking for. Taking a leadership role in the decarbonization of the oil and gas industry is likely the right way forward for the company, but it should do so in a transparent and accountable manner as all of the naysayers will be looking for anything they can pick holes in. We would recommend that ExxonMobil distances itself from the industry group that is trying to get the SEC and others to cut the industry some slack on disclosures - it would probably be wise to go the other way and promise more. ExxonMobil is likely the best-placed oil, gas, refining, and chemicals company to lead here not just because of scale but also because of its experience with CO2 – in our view ExxonMobil may have the opportunity to move from the laggard to the leader on climate change, and by doing so could become a much more interesting investment.