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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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Is Big Oil’s Plastic Gamble A Misfire?

The oil industry is no stranger to constant criticism and ire, getting more than its fair share of stick for its role in climate change and polluting the planet. Indeed, even genuine attempts by the industry to adopt the language of climate action and sustainable production is frequently dismissed as a disgraceful and desperate attempt at greenwash. 

And nowhere is this more readily apparent than in the plastics industry with fossil fuels repeatedly blamed for worsening the ongoing environmental crisis. Dozens of governments have implemented single-use plastic bans, with countless grassroots groups and activists pushing for a total ban. 

Now let’s play devil’s advocate and put on our contrarian hats: Putting all the blame at the feet of the crude oil industry really is engaging in some post hoc rationalization.

Nobody here’s trying to be a fossil fuel apologist--after all the facts pretty much speak for themselves: plastics and crude oil are intrinsically linked with over 99% of plastics made from chemicals derived from fossil fuels. 

Plastics are only semi-biodegradable at best, taking anywhere from 10-1,000 years to fully decompose. Plastics are saturating our water and soils and interfering with our food chains. Related: This Large Oil Producer Is Facing A Major Refining Crisis

The Great Pacific Garbage Patch is inundated with 1.8 trillion pieces of plastics weighing in at a staggering 80,000 metric tons.

Nobody can deny that plastic pollution is a serious problem with sobering ramifications. Yet, the facts often intermingle with half-truths. 

So, just how much oil goes into plastic production?

A resource hog?

Euractiv has reported that 359 million tonnes of plastics were produced across the globe in 2018, with plastic packaging accounting for 35-45% of that. 

So, how much crude oil went into that? Zilch--at least not directly.

Plastics are not manufactured directly from crude oil but rather from petroleum products including liquid petroleum gases (LPG), natural gas liquids (NGL) and natural gas. These are used both as feedstock and as fuel in the manufacturing process. LPGs are a by-product derived from the petroleum and natural gas refining processes, while NGLs are obtained from natural gas before it goes into the transmission pipelines.

So, how much of these feedstocks were used in plastic production in 2018? Interestingly, the well-respected Energy Information Administration (EIA) has chosen to skirt the question, glumly conceding in its latest update that: 

‘‘... it is not possible for EIA to identify the actual amounts and origin of the materials used as inputs by industry to manufacture plastics.’’

Strangely, it seems to have possessed those very powers not too long ago. 

In 2010, the EIA estimated that some 191 million barrels of LPG and NGL along with 412 billion cu ft of natural gas were used to produce plastics in the United States. The liquids worked out to 2.7% of the country’s total petroleum consumption while the natural gas accounted for 1.7% of total U.S. natural gas consumption. For the liquid fuels, 190 million barrels were used as feedstock with just 1 million barrels consumed as fuel in the manufacturing process. The tables were turned for natural gas, with just 13 Bcf being used as feedstock and 399 Bcf consumed as fuel. Related: Gas Prices Languish As Storage Falls To Near-Record Lows

The proportions were higher from a global perspective with plastics production accounting for about 4% of global oil production. Going by those averages and current global oil production of 81.4 million b/d, plastics consume about 3.3 million b/d and 1.12 Gbbl over the course of 12 months.

That’s actually less than the amount of oil that was used to generate the world’s electricity last year (oil accounts for only about 3% of global electricity production). It’s also considerably lower than figures casually thrown around by some disingenuous activists.

Source: Y-Charts

The future for the plastics industry

Nevertheless, this is not to say that the plastic industry is any friend to the environment. The important point here is to know your enemy if you want to fight it successfully. 

Indeed, last year the International Energy Agency (IEA) put out a special report that warned that a surge in demand for petrochemicals will account for 5 million barrels per day (mb/d) of oil demand growth through 2040 at a time when oil consumption in cars has already begun to plateau.

That said, it’s abundantly clear that the advantages of plastics over alternatives in terms of both cost, versatility and durability will continue to drive demand in the foreseeable future. 

Until the world is able to find reliable and cost-competitive alternatives to plastics (which already figures to be a daunting proposition), plastics are here to stay, for better or for worse.

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on November 23 2019 said:
    There is a tendency to blame Big Oil for everything afflicting climate change and pollution. Plastics are no exception.

    Big Oil is one of three huge chunks that make the global economy. The others are global investments and the economies of the oil-producing countries.

    The core of Big Oil business will remain oil production, refining, electricity generation and the petrochemical industry well into the foreseeable future.

    If Big Oil continues to produce plastics, it is because there is global demand for it. The dilemma with plastics is that they have diverse uses, hence their continued popularity but they also cause a serious pollution problem and take an awfully long time to decompose naturally. Moreover, only a small amount of the plastics used on a global scale gets is recycled.

    Plastics currently accounts for 4% of global oil production. Moreover, an estimated 359 million tons of plastics entered markets around the world in 2018.

    Until we find reliable and cost-effective alternatives to plastics, they are here to stay.The only way to curb plastic production is to make customers around the world pay for them and to enforce recycling of plastics around the world.

    Cut the global demand for plastics and Big Oil will be the first to oblige by cutting its production.

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

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