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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Is Big Oil’s Bet On Petrochemicals A Bust?

Thanks to the last years’ unstable crude markets, peak oil demand looming around the corner, rising use of renewable energy and electric vehicles, and flooded markets, big oil is looking to corner new markets and it has its sights set on plastics. Petrochemicals have a promising future, with need for plastics continuing to grow worldwide, but is it a business model built to last?

With online shopping beginning to boom in China, there will be a huge demand for plastics used in product packaging and shipping materials, and you can guess that other developing countries will not be far behind. Even “green” alternatives, such as electric cars, need specialty plastics in their manufacturing.

According to numbers published by management consulting firm McKinsey & Co., they project an annual increased demand of 1.4 percent for oil in the petrochemical sector between now and 2050, which translates to about 60 percent of total projected increases for oil demand. This is a significant number, since oil demand for light-duty vehicles is expected to flatline or even decrease by 2025.

Big oil is trying to cash in, and quickly. Exxon Mobil, suffering from its high-cost assets in the oil sands of Canada, recently announced to shareholders that they’ll be investing about $20 billion in refineries, petrochemicals and other projects around the Gulf of Mexico.

In an attempt to compete with the Gulf Coast, where companies already have a head start in petrochemical production, the American Chemistry Council (ACC) proposes that Appalachia could be developed to compete for a top spot in domestic petrochemicals. In a plan presented on Capitol Hill last month, ACC would utilize low-cost natural gas production in Appalachia to produce chemicals. If greenlighted, ACC estimates that their development project would create 100,000 permanent jobs by 2025 and $2.9 billion annually in federal and local tax revenue. Related: Which Top 3 Polluter Dominates Wind And Solar?

Canadian petrochemical producers are calling for policy changes aimed at incentivizing investment in domestic petrochemical projects as projected demand continues to rise.

While investors are focused on major projects in the U.S., local producers claim that Canadian industries also have major petrochemical production potential.

Meanwhile, last month’s Asia Petrochemical Industry Conference (APIC) in Sapporo, Japan showed that alongside the U.S. the east is also undergoing major changes, with China and India at the forefront of the new petrochemicals landscape. In China, there is currently a major push toward developing petrochemical production, starting with seven ?refining and petrochemical bases along the coast from Dalian to Guangdong.

India is also aiming big, showcased by a major expansion of Reliance Industries’ massive Jamnagar petrochemical complex with a 1.5m tonne/year refinery due to be completed in the next few months and three more on the west coast of India using imported U.S. ethane.

The Middle East is also determined not to be left behind by oil’s next big production wave, but they’ve turned to the U.S. for help. Saudi Aramco, the world’s biggest oil producer, has partnered with U.S.-based Dow Chemical to develop the groundbreaking Sadara petrochemicals complex near Jubail, now nearing completion. Now they’ve also pledged to build two additional plants in Saudi Arabia. During President Trump’s recent visit to the Kingdom, Dow announced plans for a new plant built to manufacture a range of acrylic-based polymers for coatings and water-treatment applications. Related: Expert Analysis: Bullish Sentiment Is Fading Fast

Around the world there is a race to get into petrochemicals while the getting’s good, but there’s a significant risk to this strategy. Peak oil consumption is a continued threat, and many places in the world, as they move away from oil, are also making moves to cut down demand for plastic, one of the world’s biggest environmental pollutants.

The World Economic Forum, in conjunction with the United Nations, the Ellen MacArthur Foundation and McKinsey & Co., published numbers that suggest at least 8 million tons of plastics leak into the ocean annually by a conservative estimate. Because of this flood there are about 150 million tons of plastics pollution in the ocean today, and if the trend continues, by 2025 oceans would contain one ton of plastic for every three tons of fish. By 2050, fish would be outnumbered by plastic waste.

We’ve already seen plastic bag bans in progressive cities like San Francisco and Los Angeles, but it’s likely that stricter policies are in store. As environmental pollution due to plastics becomes a more serious problem, government policies around the world will surely ramp up in response.

Also, as recycling becomes more accessible worldwide, it could be a huge blow to the projected increased petrochemicals demand that big oil is banking on. McKinsey has released a study on peak oil demand that suggests that widespread recycling alone could eliminate one quarter of oil use from plastics. If we can even come close to that, big oil’s newest plan is sure to be a major disappointment.

By Haley Zaremba for Oilprice.com

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