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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Big Oil’s Risky Plastic Bet Could Lead To $400 Billion In Stranded Assets

Oil companies are risking some $400 billion in stranded assets with their focus on petrochemicals production growth that relies on strong growth in demand for plastics, Carbon Tracker has said in a new report.

“The oil industry is pinning its hopes on strong plastics demand growth that will not materialise, as the world starts to tackle plastic waste and governments act to hit climate targets,” the organization said.

Big Oil companies are banking on demand for plastics replacing much of the demand for oil from the transport sector as EVs displace internal combustion engines. But Carbon Tracker’s The Future’s Not in Plastics report suggests that growth in plastics demand will actually be much weaker than Big Oil needs because of an expected shift “from a linear plastic system to a circular one and governments act to hit climate targets.”

If this proves true, it will make for terrible news for the oil industry. While the major displacement of oil demand in the transport sector has yet to materialize as EV penetration has been slower than major projections estimated, the crusade against plastics has begun and will only intensify in the coming years. This would mean more initiatives for banning single-use plastics and more regulation in place for plastics recycling. Without regulation, the crusade will fail.

According to Carbon Tracker, however, it will win, not least because of problems inherent in the plastics industry.

“Plastics impose a massive untaxed externality upon society which this report estimates is about $1,000 per tonne ($350bn a year) from carbon dioxide, health costs, collection costs, and ocean pollution,” the report’s authors wrote, adding that these can be mitigated through recycling, replacing with alternative materials, and improving the design and regulation.

If demand for plastics falls, then some 80 million tons of new plastics production capacity worth $400 billion will be stranded, the report warns.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on September 04 2020 said:
    Global oil transport accounts for 73% of crude oil consumption, petrochemicals 12% and is projected to hit 18% by 2050, plastics 4% and the balance of 11% is used in electricity generation and some other uses.

    It is inaccurate for the author to say that Big Oil companies are banking on demand for plastics replacing much of the demand for oil in the transport sector. How can 4% share of global oil used currently in plastics production replace 73% share used in global transport. Furthermore, electric vehicles (EVs) will never ever prevail over internal combustion engines (ICEs) throughout the 21st century and probably far beyond.

    And whilst the plastics industry is currently coming under huge pressure as the world starts to tackle plastic waste and governments act to meet climate targets, there will always be increasing need for recyclable plastics at the expense of single-use plastics.

    Therefore, oil companies won’t be risking some $400 billion in stranded assets as any loss of single-use plastics will be amply offset by increasing global demand for recyclable plastics.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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