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By Jared Mann, CFA
New “e-cracking” technology seeks to shrink chemical companies’ carbon footprints, potentially creating long-term opportunities for ESG investors.
The Energy Transitions Commission estimates that decarbonizing the global economy will require a $50 trillion investment in sustainable infrastructure through 2050. We believe this net-zero revolution could create compelling opportunities for climate-conscious investors—even within sectors they may have historically avoided.
One area worth keeping an eye on is the commodity chemicals industry, which uses natural-gas-fired “cracker” furnaces to break molecules apart to make other materials—as when crude oil is refined into fuel or converted into plastics. Firing those steam crackers to 850 degrees Celsius eats a lot of energy and produces significant emissions.
Now, new “e-cracking” technology seeks to change all that. Instead of using natural gas to generate heat, e-crackers use electricity derived from renewable energy sources, such as a solar and wind, to shrink producers’ carbon footprints. Better yet, petrochemical stalwarts are starting to embrace the transition.
In June 2022, Shell (SHEL) and Dow (DOW) announced the successful startup of their experimental e-cracking unit. And in early September, BASF (OTCQX:BASFY), SABIC, and industrial gases leader Linde (LIN) announced plans to pilot a large-scale e-cracker with the potential to reduce CO2 emission by at least 90% versus conventional steam crackers. This underscores our rationale for holding a few of these companies in client portfolios.
Should e-cracking be technically and commercially successful, we believe it could help these players in potentially hitting their own mid-term net-zero targets while supporting decarbonization of the broader petrochemical industry through licensing or other financial arrangements. As part of our active-engagement approach at Neuberger Berman, we encourage commodity producers to embrace potential opportunities in technologies like e-cracking in seeking to further their low-carbon transitions.
With e-cracking and other sustainable-infrastructure technologies on the rise, we believe investors who focus on Environmental, Social and Governance (ESG) practices may find new opportunities in seeking to generate attractive long-term, risk-adjusted returns.
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