Refiner Boosts Battery Bet as It Sees U.S. Gasoline Peaking

(Bloomberg) -- Phillips 66, one of the largest U.S. oil refiners, is expanding its involvement in the fast-growing world of battery technology as the company predicts that gasoline demand has already peaked amid the energy transition.

Phillips 66 said Monday in a statement it will buy a 16% stake in Australian company Novonix Ltd. for $150 million and take a seat in its board. Novonix processes specialty coke to make anode materials for batteries. Phillips 66 said the investment will support the development of a domestic supply chain for sales into the U.S. electric vehicle and energy storage markets.

The deal comes after a tough year for the oil refining business, which struggled amid the plunge in gasoline and jet fuel demand triggered by the pandemic. Efforts by the U.S. and other countries to speed up the transition away from fossil fuels has also heightened speculation about when demand for oil-based fuels will peak. In what amounts to a kind of hedge against an eventual decline in its main products, Phillips 66 already has an established battery business. It supplies specialty coke and runs a research and development laboratory in Bartlesville, Oklahoma.

“We do think batteries are just going to grow,” Chief Executive Officer Greg Garland said in a conference with journalists, adding that carmakers in the U.S. and Europe want to reduce their dependence on China for battery supplies. “That’s actually an opportunity for us.”

The company is exploring new technologies ranging from solid oxide fuel cells -- ceramic devices that directly convert chemical energy from fuel gases into electricity -- to organic solar cells and battery materials. The Houston-based refiner also plans to produce as much as 1 billion gallons a year of renewable diesel through 2024, mostly through the conversion of its San Francisco Refinery in Rodeo, California, into a biofuel plant.

Gasoline and diesel are “probably at peak demand already” in the U.S. and Europe, and the refining industry is likely to be smaller in the future, according to Garland. Still, demand for plastics and other petroleum-made inputs for everything from batteries and electric vehicles to solar panels is set to continue to grow and offer opportunities for crude processors like Phillips 66.

“You can’t build a Tesla without fossil fuels,” Garland said. “We have a role to play in this energy transition, and we’re anxious and willing to play that role”.

Garland said Phillips 66’s emerging energy businesses may generate as much as $2 billion in earnings before certain items by the end of the decade, half of what is typically generated by the company’s refining operations.

Novonix’s anode materials business is based in Chattanooga, Tennessee. It plans to expand production capacity for synthetic graphite at the facility to 10,000 metric tons a year by 2023. Phillips 66’s investment will support an additional 30,000 tons by 2025.

(Updates with CEO comments starting in fourth paragraph)

More stories like this are available on bloomberg.com

©2021 Bloomberg L.P.