With Peak Plastic Looming, Petrochemicals Are at a Crossroads

As the global transportation sector decarbonizes, oil and gas stakeholders have been pinning their hopes for survival on the growth in demand for plastics and other petrochemicals. That may have seemed like a safe bet just a few years ago. However, a recent report from the organization Carbon Tracker has thrown cold water on the strategy.

Door shutting on growth for petrochemicals

Plastic bottles and other single-use disposable items have saturated markets in the U.S. and other wealthy economies for years, with little prospect for future growth spurts of any consequence. In contrast, patterns of plastic use in Asia, Africa and other regions have yet to reach the same level of saturation, indicating the potential for significant future growth.

At least, that was the thinking in past years. For example, a 2003 study indicated long-term, rapid growth in demand for plastics in China. Those expectations have since dimmed. A sharp change in the nation’s plastic garbage importation policy in 2018 seemed to offer some hope for the plastic industry, but in 2019 the Financial Times reported on a slowdown in demand.

China appears determined to accelerate the downward trend. Earlier this year, the country announced a phased-in ban on single-use, nondegradable bags along with disposable plastic tableware among other products.

How a 'green recovery' could draw the curtain on single-use plastics

The petrochemical industry’s plans for growth may seem a little more solid in India. Last fall Prime Minister Narendra Modi proposed a ban on plastic bags, straws and other disposable items, but he quickly dropped the idea as the nation was experiencing an economic downturn at the time. The reason given was that a ban would cost thousands of jobs, including jobs for workers who depend on recovering throwaways for a living.

On the other hand, the COVID-19 crisis has caused far more economic turmoil and job loss in India this year, leading to the possibility that a green recovery could create new work that does not rely on disposable plastics.

Lending support to the idea of a plastic-free recovery, the World Economic Forum recently reaffirmed its support for a global shift away from plastic, though noting an uptick in demand for certain disposable items associated with the COVID-19 crisis.

Industry pressure meets international action

Another key safety valve for petrochemical stakeholders is Africa. Last month, the New York Times revealed that an industry group has been applying pressure to expand the market for U.S.-made plastics in Africa, while also leaning on policy makers to continue importing plastic garbage. A main focus of the pressure campaign is Kenya, which recently took strong measures to deal with its own plastic problem.

Despite the weight of the pressure campaign, environmental advocates in Kenya and other African nations may have a new weapon on their side. Last year, policy makers finally added plastic to the Basel Convention, a 1989 international agreement that restricts the ability of wealthy nations to ship hazardous waste to developing countries.

The U.S. signed the Basel Convention in 1990 but never ratified it. However, Kenya has been on board since 2000, and ratified the new amendment last spring.

A wet blanket on the petrochemicals fire

Against this backdrop, last week Carbon Tracker ran down all the other reasons why the petrochemicals industry is in serious trouble.

Carbon Tracker collaborated with the London based firm SYSTEMIQ on the new report, titled, “The Future’s Not in Plastics.”

Part of the problem is a relatively straightforward supply glut. In recent years ExxonMobil and other stakeholders have been doubling down on their investments in petrochemicals. In the U.S., that includes a major expansion of ExxonMobil’s Baytown petrochemicals facility in Texas.

Adding to the glut is a new petrochemical hub that is proposed for the Ohio River Valley region in Appalachia. The hub has been supported by the U.S. Department of Energy, which just last year glowingly noted that the “United States is on the cusp of an Appalachian petrochemical renaissance that scarcely could have been imagined a decade ago.”

The hub was supposed to support up to five new petrochemical plants. Shell is moving forward with its plans, but one project was canceled last year and another developer bailed out this year on the heels of the COVID-19 outbreak. That lends strength to the argument of opponents, who have raised concerns over the risk of stranded assets, misplaced public investment in new infrastructure, and lost opportunities for green development.

BP appears to have seen the writing on the wall and is ratcheting down its petrochemicals operation. However, that leaves ExxonMobil and other stakeholders holding the bag, which Carbon Tracker estimates at $400 billion in stranded assets.

A bottom-line solution for the plastic problem

Aside from a simple case of industry shakeout, the report from Carbon Tracker and SYSTEMIQ details other elements that all but guarantee slower-than-expected growth in the near term, and a painful period of shrinkage after 2027.

Of key interest is the report’s bottom-line analysis, which takes external costs and the potential for new carbon-related regulations into account.

“SYSTEMIQ notes that technology solutions are already available to enable a massive reduction in plastic usage at lower cost than business as usual,” Carbon Tracker explains. “Solutions include reuse, with better design and regulation of product, substitutions such as paper, and a large increase in recycling.”

In response to considerable public pressure and consumer interest, the circular economy trend is already emerging among mainstream brands that are shifting into reusable or refillable packaging. Loop and Japan’s Kao are two leading examples.

Meanwhile, interest in more sustainable substitutes for petrochemicals is growing among leading manufacturers such as Lego, which has been experimenting with plant-based alternatives to its iconic bricks along with the company’s renewed emphasis on recycling and reuse.

In addition, new cutting-edge recycling technology is creating new opportunities to reclaim mattress foam and other plastic waste that was previously unrecoverable, further undercutting the need for virgin plastics.

Oil and gas stakeholders are fighting for their lives and will not give up easily. However, as the impacts of plastic pollution come into sharper focus and public awareness deepens, business leaders have an opportunity to advocate to bring their own firepower to the table, and advocate for policies that support effective solutions.

Image credit: PxHere