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US majors in the slow lane on transport transition

US majors see little incentive to prepare for greater EV adoption

European majors are addressing the challenges of the energy transition in transport fuels by acquiring technology, conventional and renewable electricity generation capacity, and new positions in the electricity supply industry. But their US peers are limiting their participation to energy efficiency and new technology as the shale revolution continues to increase US hydrocarbons output.

ExxonMobil and Chevron, and their competitors, largely appear to have adopted the attitude of "What is the hurry?", says an oil consultant. "Even if you look at the most optimistic assumptions on electric vehicles, demand will still be 90pc liquid fuels for the next 10 years at least," he adds. US EVs account for less than 2pc of vehicle sales, and in contrast to Europe, retail power sales are largely in the hands of regulated utilities.

Analysts say investor reluctance to commit additional capital across the industry as US hydrocarbon output continues to rise; and the fact that key producing basins, including the Bakken and Permian, are logistically constrained has also kept the US industry focussed on upstream issues rather than on a longer-term retail fuels evolution.

Industry officials note that both ExxonMobil and Chevron are developing and upgrading refinery capacity to handle the very light crudes being produced by the shale revolution, dedicating capital to "traditional refining". One consultant says US refiners "benefit from proximity to fast-growing markets" in Latin America and are broadly positioning themselves as the key suppliers to that region as its demand grows and local refinery capacity lags. More pointedly, "there is zero policy in the US that would push you towards doing things any differently".

State by state

Despite considerable fanfare over the increasing role of electricity in the transport sector, policy in the US has so far been set on a state-by-state rather than a federal basis. Also, tight regulations on electricity sales based on utility "returns on ratebase" models would change the risk profile and lower the returns of major oil companies, industry officials say. In many states, prohibitions on the resale of electricity at the end-user level effectively bar retailers from selling power from EV charging stations under their own name. Only a few chain-store retailers who also sell fuel have begun to push the possibility of public EV charging, although utility and car-maker interest in the sector is growing.

In a progressive restructuring, much of the US majors' retail sector was sold to large-scale convenience store operators and now operates under branding and supply contracts, as the majors exited the sector to minimise their capital commitments and environmental exposure, industry officials point out. The retail sector is, however, worried about growth in the EV charging market. Utilities "are seeking approval from state governments to enter the vehicle recharging business for EVs and treat their capital investments in the alternative refuelling business as part of the utility rate base, effectively creating a monopoly of EV charging stations paid for by all electric power consumers", to the disadvantage of fuel retailers, says national fuel retailer association Sigma.

Despite retailers' preoccupation, ExxonMobil and Chevron have not so far directly addressed the retail issue. Chevron last year participated in a funding round for Charge Point, a network of EV charging spots, while ExxonMobil is actively exploring carbon-capture technology to boost conventional power generation and has acquired renewable generated power for its operations. But neither has directly addressed potential long-term substitution of oil products by power in the transport sector. ExxonMobil exited its last non-refinery generation business in 2013, when it sold its Hong Kong power generation business. Neither company now operates power generation unconnected to their refineries or oil field operations.

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