Chief Economist decodes market signals to navigate dynamic energy industry

Ever wonder what goes on in the mind of a chief economist?

For Sean Maher, Phillips 66 Chief Economist, it's how key economic indicators are shaping the energy industry and influencing the company's business decisions. We're talking about the big stuff that's got everyone buzzing about - the so-called "supercycle" in refining and current events driving energy markets. He's thinking about lots of things, of course. But top of mind is the company's approach to navigating economic uncertainties and capitalizing on growth opportunities.

In our latest Q&A, Maher shares his views on refining and marketing, chemicals, midstream - even AI.

1. There's no shortage of economic news these days. As chief economist for Phillips 66, what are you watching most closely?
   My team and I closely monitor global events and their impact on the energy industry. These events can create uncertainties in global markets, affecting commodity prices, including crude oil, natural gas and natural gas liquids. We also track how changes in the economy, such as shifts in interest rates, can influence consumer spending on energy products. Looking ahead, our focus will be on the long-term implications of economic growth in different parts of the world. Emerging economies play a crucial role in the energy sector due to their increasing energy needs as they develop and urbanize. By closely monitoring these factors, we can make informed decisions in the ever-changing energy landscape.
   
   
2. Refining companies have enjoyed what some are calling a supercycle. What are the factors moving commodity markets?
   The refining margin environment from 2021 to 2023 was robust, driven by geopolitical and supply chain factors. We anticipate the strong margin environment to persist. However, it may not reach the peak levels of 2022. With economies growing and populations expanding, the need for energy, particularly in developing nations, continues to rise. In the U.S., I believe that the transition to EVs isn't happening as quickly as some might expect. As a result, traditional energy sources like crude oil and natural gas remain in high demand. The combination of these factors is sustaining this supercycle for refining companies. However, it is essential to remain vigilant as the industry landscape can change.
   
   
3. At Phillips 66 we make a lot of gasoline and diesel, but we also have a 50% share in Chevron Phillips Chemical company. What's the outlook for transportation fuels compared to chemicals over the longer term?
   Phillips 66 is a significant producer of gasoline and diesel. While the long-term outlook for gasoline demand in the U.S. is subdued, a slowing pace of EV adoption is improving the demand outlook. That said, the global market for diesel remains strong. Recent trends show that the demand for both gasoline and diesel has surpassed expectations due to strong economic growth and increased discretionary spending. In the chemicals sector, there is significant and long-term growth potential ahead. We anticipate steady demand growth from sectors like construction, healthcare and manufacturing, which are significant drivers of petrochemical demand.
   
   
4. What is the significance of midstream infrastructure in the energy sector?
   Midstream infrastructure acts as a vital bridge between the extraction of hydrocarbons and their delivery to consumers, ensuring a smooth flow of energy commodities. The midstream sector is expected to generate stable cash flows, driven by factors like the Permian Basin's continued importance as a source of hydrocarbons and upcoming LNG terminal projects. Phillips 66 stands out in this sector with our unique capabilities, including LPG export capabilities and a strong regional footprint with our expanded ownership and control of DCP Midstream. Our pending acquisition of Pinnacle Midstream will allow us to optimize assets downstream of the gathering and processing system, enhancing both margins and returns.
   
   
5. We're seeing a lot of news about artificial intelligence. What impact might that have on the economy?
   I believe that AI is reshaping industries worldwide, enhancing efficiency, increasing electricity demand and optimizing operations. It's revolutionizing how we work by automating routine tasks and allowing humans to focus on more strategic work. In manufacturing, AI is optimizing production lines, reducing waste and improving product quality.