Exxon’s plastics business is turning record profits

Oil companies like Exxon are turning record profits from plastic as the economy turns away from other uses of oil.
Oil companies like Exxon are turning record profits from plastic as the economy turns away from other uses of oil.
Image: REUTERS/Aly Song
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Oil companies posted bumper earnings for the second quarter of 2021, mainly thanks to the highest oil prices in half a decade, which were in turn driven by the post-pandemic return of air and road travel, and a dispute over production quotas among OPEC member states.

Royal Dutch Shell’s adjusted earnings amounted to $5.5 billion in the second quarter, it announced on July 29, compared to $638 million in the same period last year. For French major Total, the figures were $3.5 billion compared to $126 million. Flush with cash for the first time in recent memory, both companies announced plans to buy back a combined $2.8 billion in shares, a reward for investors who have stuck with the companies through the collapse of their share prices throughout 2020. And on July 30, Chevron followed suit, posting its best quarter since 2019 and also launching a multibillion-dollar share buyback.

Things are finally looking up for Exxon

The most recent is ExxonMobil, also on July 30, whose earnings skyrocketed to $4.7 billion from nearly $1 billion in losses in the same quarter last year. It’s a major pivot for Exxon, where good news has been in short supply recently: In addition to its cash flow woes, the company is scrambling to pay off record debt, lost a battle over board membership with climate activist investors in May, is in the midst of laying off 10% of its workforce, and saw one of its lobbyists caught on tape in July disparaging the Biden administration’s climate goals.

In addition to oil prices, Exxon also especially benefited from booming consumer demand for plastics: Its petrochemical division posted its best quarter on record, responsible for a full half of the quarter’s profits. In recent years, Exxon has invested heavily in petrochemical refineries, including a new $10 billion facility in China, enough to make it one of the world’s largest chemical companies if that were its only business.

Despite environmental costs, Big Oil needs plastic

As the world transitions to electric vehicles and cleaner forms of transportation fuel, many analysts see plastics as the oil industry’s “bright spot;” demand for the key plastics petrochemical ethane is projected to grow 20% by the end of 2022. Plastic pollution, meanwhile, is on the rise globally, even as oil companies promote recycling programs that often fail to deliver.

Still, the combination of high demand, the temporary outage of many petrochemical refineries in the Gulf Coast during the winter storm in Texas in February, and congestion and high prices for shipping containers led to an exceptionally tight global market for petrochemicals that Exxon was well-positioned to capitalize on; the company’s profit margin in the sector in the second quarter was far above its average in the last decade, and far higher than that of transportation fuels.

Exxon has moved slower than many of its peers in transitioning its business from fossil fuels to low-carbon energy sources—but if this quarter is any indication, that could be because the company is betting that consumers will keep using plastic long after they stop buying gasoline.