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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Did The Plastics Boom End Before It Even Started?

Three years ago, the UN declared plastic pollution a global crisis, more than three decades after the discovery of the Great Pacific Garbage Patch--a collection of marine debris 2x the size of Texas. The Year 2020 was supposed to be a watershed moment for the plastic industry after dozens of state and local policymakers planned to make the ultimate shift away from plastics. They clearly underestimated the sheer tenacity of the plucky industry and a global pandemic. 

The plastic industry has quickly seized the unexpected opportunity provided by the Covid-19 pandemic and an indulgent government to push back on plastic bans.

The plastics and petrochemicals sector received a much-needed shot in the arm after the Trump administration gave it an ‘open license to pollute’ after relaxing tough environmental laws and fines for environmental pollution during the COVID-19 crisis.

But maybe they have done the victory lap too soon, and the Trump bonanza will be hardly enough to overcome a much bigger existential crisis.

The demise of the shale and fracking boom that has been powering a plastics renaissance is beginning to take a heavy toll on the plastics sector as well.

Source: World Economic Forum

Big Trouble for Petrochemicals

The shale boom led to an overabundance of cheap oil and natural gas, key commodities used in the manufacture of plastics both as feedstocks and as fuel. The fossil fuel industry has been heavily pivoting into the petrochemical sector as a second cash cow even as the world grew increasingly weary of its role in environmental degradation, and investors started giving it a wide berth. Related: The Terrifying Truth About Trading Oil
Indeed, the plastics industry was poised for an epic explosion--until the coronavirus crisis and subsequent oil price collapse dealt it a potential death blow.

Time magazine has reported that South Africa’s integrated energy and chemical giant, Sasol Ltd, opened a new plastic plant in Louisiana last year, one of seven such projects it had in the works while Shell was is in the process of building a huge multi-billion dollar ethane cracker plant in Pittsburgh with the capacity to churn out 1.8 million tons of plastic each year. 

According to the American Chemistry Council, no less than 343 new plastic production plants and expansions were given the green light in the month of February or planned in the near future. Global plastics production was set to increase by about a third over the next five years and triple over the next three decades.

But the ongoing energy and health crisis have put paid to these plans and rosy projections.

Thailand-based PTT Global Chemical has announced that it will indefinitely delay its plan to build an ethane cracker plant in Ohio, citing uncertainty amid the health crisis while Shell said in March that it was shelving its Pennsylvania project.

Meanwhile, China’s plans to invest $84 billion in plastic and energy investment in West Virginia are yet to materialize three years since the promise was made.

The plastic bloodbath could be just beginning.

Kevin Swift, MD for economics and statistics at the American Chemistry Council, has told Time that the oil price and economic crisis means that everybody is trying to conserve cash, and spending is likely to be severely curtailed. 

Last week, Shell shocked the world after cutting its dividend for the first since WWII on top of the 20% Capex cut it had announced in March. The Dutch energy giant also warned that oil demand might never fully recover.

Related: Saudi Arabia Raises Oil Prices As Demand Recovers

Global oil companies are set to cut 2020 capex by ~$62.5B, or 27% of previous projections. The recent spate of poor results by the Chemicals divisions of most oil majors suggests that many will not be in a hurry to pour their cash into the sector any time soon.

Plastic IOverproduction

Some of the problems are the industry’s own making, though.

Last year, Chemical Week predicted “growing pains” for the industry due to the increasing rate of production threatened to exceed consumption. 

The Covid-19 pandemic has given a boost to single-use plastics--about 40% of the market--due to growing demand for PPE, disposable bags, cups, bottles, and boxes due to hygiene issues. However, it’s unlikely to offer adequate long-term support for the entire plastic industry with China maintaining a sweeping ban on single-use plastics with similar bans expected to come into effect in the EU, Canada, and at least 34 African nations.

With a global freeze on capital spending that might take years to return to pre-crisis levels, weak economies, and stiff public opposition, the plastic and petrochemical industries are standing on very shaky grounds indeed.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Carlos Everett on May 07 2020 said:
    The plastics industry utilizes its feedstock to make over 70,000 products with new uses coming daily.
    What will occur is that both Govt. and Industry will work together to reduce and/or eliminate as many of the one use products, while shifting productions to all of the new products coming online.
    The plastics industry will still be producing for years to come all the while minimizing product waste that contributes to pollution

    A reminder of a product first developed in 1910-1920, by the petroleum industry, which was called carbon black. There were 40 of these plants in the Texas Panhandle and these plants were extremely toxic to everything in or around those plants. It was so bad , that the workers just to protect themselves came up with a new way to produce carbon black call the channeling Method, which significantly improved the product and reduced pollution.

    It seems the green industry does not want to remember all of the milestones that American workers have achieved solving problem after problem and the plastic waste issue will also be resolved by the World workers this time.

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