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Fossils See Circular Economy, Backlash Against Plastics Cutting Demand for Oil and Gas

June 9, 2019
Reading time: 6 minutes

https://pixabay.com/en/plastic-bottles-fishing-net-netting-388679/

MatthewGollop / Pixabay

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The mounting global backlash against plastic pollution has fossil companies worried, as public opinion coalesces into a threat to businesses they’ve been counting on as a reliable source of demand for their own raw product.

“As the world strives to wean itself off fossil fuels, oil companies have been turning to plastic as the key to their future,” BNN Bloomberg reports. But “now, even that’s looking overly optimistic. The global crackdown on plastic trash threatens to take a big chunk out of demand growth, just as oil companies like Saudi Aramco sink billions into plastic and chemicals assets. Royal Dutch Shell Plc, BP Plc, Total SA, and Exxon Mobil Corporation are all ramping up investments in the sector.”

But “renewed emphasis on recycling and the spread of local bans on some kinds of plastic products could cut petrochemical demand growth to one-third of its historical pace, to about 1.5% a year,” Bloomberg states, citing Accenture Plc principal Paul Bjacek.

“Oil companies are saying, no problem, we’ll invest in petrochemicals,” Bjacek said. “But petrochemicals, after the circular economy happens to the maximum extent, is likely to be a low-growth market.”

The back story is “flatlining” demand for gasoline, driven by fuel efficiency in conventional vehicles and surging demand for electric cars, Bloomberg says. So fossils are looking to plastics and petrochemicals “as their safe haven against the fading outlook for fuel, ensuring that they’ll have a piece of a more robust market for their hydrocarbons. The shift is most apparent at Saudi Aramco, the world’s biggest oil company, which in March agreed to pay $69.1 billion for a majority stake in Saudi Arabia chemical producer Sabic while investing billions more to expand chemical production around the world.”

Countries like China are also designing new refineries to produce more chemicals and less fuel, according to analysts at Citibank. Bloomberg says Exxon is boosting its chemical-making capacity by 40% in Asia and North America in anticipation of future demand. And last year, DeSmog Blog reported on well-advanced plans for a U.S. petrochemical boom, sufficient to undercut greenhouse gas reductions in other sectors and turn the northeastern “rust belt” into a new plastics belt.

“They’re building these units because they need the fuel, but they are sort of future-proofing it,” said UBS Securities analyst John Roberts. “It’s acknowledgment that there is a peak coming in the global fuels market.”

But analysts say real-life demand isn’t keeping up with projections. “Images of waste fouling the oceans are drawing government bans on single-use plastics from the European Union to India and California,” Bloomberg notes. “Chemical makers are investing in recycling technologies and infrastructure. Coca Cola Co. is pledging to recycle one bottle for every one it sells by 2030 as consumer products companies come under pressure to reduce their use of plastics.”

The new emphasis on waste recovery means recycled resins could replace nearly one-third of virgin plastic by 2030 and nearly 60% by 2050, the news agency adds, citing a McKinsey & Co. report. The shift could cut oil demand by 20% for petrochemical production, by 50% for plastics.

“It adds some uncertainty from a demand standpoint, as the oil industry is looking more and more to chemicals for diversification,” said Robin A. Waters, director of plastics planning and analysis with market analysts IHS Markit.

InsideClimate News picked up a more optimistic industry outlook, but a lingering undertone of concern, at least week’s Global Plastics Summit in Houston. “Representing businesses all along the supply and packaging chain, the speakers suggested solutions ranging from new technology that would take plastic back to its molecular building blocks for repeated recycling to redesigning plastic bottles with caps that stay connected to the bottle,” InsideClimate reports. But a senior executive with IHS, which co-hosted the gathering, said none of that will be enough to push demand growth below 3.5 to 4% per year through at least 2035.

“The solution isn’t going to happen overnight,” said Vice President Dewey Johnson. “The solution is going to happen over decades,” which means the industry’s challenge will be to “maintain trust along the ride.” He urged participating companies not to delay their response to the plastic waste crisis, since “this continuing increase in the plastics market increases the scale of the size of the solution.”

At an event with multiple sessions focused on sustainability, InsideClimate adds, the perception was that “industry has been taking a beating in the public’s eye—and cities, states, and some countries have begun to restrict, ban, or regulate certain plastics. Analysts described all this as one of many risks to plastics’ economic future.”

Patty Long, interim president and CEO of the Plastics Industry Association, the other conference co-host, lamented the robust “anti-plastics campaign” her industry is facing, pointing to a 2018 National Geographic cover of a plastic bag iceberg in the ocean.

“If I am going to be honest, I must say it’s been pretty uncomfortable these last six months to a year as we have watched images of plastic strewn over beaches and pictures of sea animals with ingested plastic,” she said. “We see it over and over and over again.”

The industry has responded with a PR offensive to get the public to love plastics, and is pushing back on more than 400 measures to curb plastic pollution in dozens of U.S. states. “Unfortunately, a lot of those are going to pass,” Long told participants.

“She said the industry was lobbying state lawmakers, working to get pro-plastics presentations into schools, and developing a website to carry the industry’s message and give its workers something positive to say about plastics when they are confronted about their employment,” InsideClimate states. Long fretted that “a 27-year-old might not want to come work” at a plastics company, and three Millennial generation workers on one panel confirmed that some college grads are shunning the industry.

At other points in the conference, “speakers celebrated the shale fracking boom that, through new drilling methods, have put a glut of cheap natural gas on the market, driving down manufacturing prices and spurring the development of a potential new plastics production hub in Appalachia.”

While the conference’s sustainability theme focused largely on waste and recycling, questions also came up about the link between plastics and climate change. InsideClimate cites last month’s blockbuster report by the U.S. Center for International Environmental Law and five other organizations that placed the industry’s life cycle greenhouse gas emissions at 850 million tonnes this year—with potential to hit 1.34 gigatonnes per year by 2030, the equivalent of 295 500-megawatt coal plants.

“By 2050, the production and disposal of plastic could generate 56 gigatons of emissions, as much as 14% of the Earth’s entire remaining carbon budget,” CIEL warned in a release.

“The story of plastic’s contribution to climate change really begins at the wellhead, and we can therefore say that a portion of carbon emissions from oil and gas production is attributable to the creation of plastics,” added Matt Kelso, Manager of Data and Technology at the Camp Hill, Pennsylvania-based FracTracker Alliance. “As gas travels from hundreds of thousands of wells through a network of millions of miles of pipelines on its way to downstream facilities, there are countless releases of carbon through leaks, venting, and flaring, mostly in the form of carbon dioxide and methane.”

With a 2017 study concluding that only 9% of the plastics ever made have been recycled, InsideClimate News says the industry is hard at work on chemical recycling processes to convert plastics back into their molecular building blocks, to then be turned into new products. “It would reduce the need for extracting oil or gas, putting the industry closer to a circular economy, which designs waste out of the system, speakers said.”



in Auto & Alternative Vehicles, Climate Action / "Blockadia", Community Climate Finance, Demand & Efficiency, Ending Emissions, International Agencies & Studies, Middle East, Oil & Gas, Petrochemicals & Plastics, Research & Development, Shale & Fracking, Supply Chains & Consumption

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  1. Laurie Adkin says:
    3 years ago

    Excellent report–thank-you!

    Reply

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