Is ExxonMobil Hedging Against a Lawsuit?

Two recent news items involving ExxonMobil, at first glance, appear to be unrelated. But are they really?

First, ExxonMobil announced this week that it is making a large investment to expand its “advanced recycling” equipment in Baytown, TX. Advanced recycling is also known as pyrolysis, a process that heats plastics in an oxygen-free environment to such a high temperature that they degrade and become low-viscosity hydrocarbons (naphtha and similar mixes). The naphtha is then treated like any other naphtha fraction within the Bayport facility and further processed to create the monomers needed to make new plastics.

This process differs from the normal thermal degradation that occurs when an extruder or mold gets too hot because of the oxygen-free environment. When oxygen is present, the plastic will char (or, in extreme cases, burn). Without oxygen, the long polymer chains just fall apart.

ExxonMobil’s particular technology is called Exxtend, which is an exxcellent exxample of exxemplary creativity by the marketing folks, huh?

ExxonMobil to increase chemical recycling capacity by 600%

Its current plant can process 80 million pounds of plastic a year. The new investment of $200 million will increase that capacity more than 600% to 500 million pounds. Even for a giant like ExxonMobil, $200 million is a significant investment. In my career, the largest capital investment I was ever involved with was for $10 million and getting that took far more time, effort, and sweat than I thought was necessary. I can only imagine all the internal approvals needed to sign off on spending this amount.

As an aside, I’ve never been on board with advanced recycling. Pyrolysis is a chemical reaction that runs in the opposite direction of polymerization. Polymers become monomers which become polymers which become . . . around and around you go. The only problem is that there are inefficiencies in both reactions that cannot be recovered. The second law of thermodynamics has its hands all over these operations and requires that energy is put into the loop to make up for the waste energy in each operation. There will also be material waste in each step, as exceedingly few chemical reactions are 100% complete. Pyrolysis is a crude, blunt technique for slicing up polymers, and the inefficiencies will be that much worse.

Golden State alleges deception on plastics recyclability

The second news story is from late September when the California attorney general filed a lawsuit against ExxonMobil (and anyone else acting as its agent) for “deceiving the public on recyclability of plastic products.” The initial complaint goes on for 147 pages and covers a wide range of allegations. You can find it online if you are interested.

The lawsuit doesn’t have the almost mandatory request for XX BILLION DOLLARS in damages, but certainly that amount will be provided in the future, and it will be large. California is a large state with a large population, so if any damages are found by the jury, you can expect them to be large, as well.

The cynical side of me sees the $200 million investment in advanced recycling as a hedge against this lawsuit. ExxonMobil now can argue that advanced recycling is growing at a tremendous rate and that it is actively involved in the effort. Even if it doesn’t completely sway the jury to find ExxonMobil innocent, if the investment can get the damages reduced by even just $1 billion, that would be a 5x payoff.

Not too shabby.