• 3 minutes Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 6 minutes This Battery Uses Up CO2 to Create Energy
  • 10 minutes Phase One trade deal, for China it is all about technology war
  • 12 minutes Trump has changed into a World Leader
  • 8 hours Indonesia Stands Up to China. Will Japan Help?
  • 1 hour We're freezing! Isn't it great? The carbon tax must be working!
  • 58 mins Shale Oil Fiasco
  • 15 hours Might be Time for NG Producers to Find New Career
  • 2 hours Environmentalists demand oil and gas companies *IN THE USA AND CANADA* reduce emissions to address climate change
  • 18 hours Angela Merkel take notice. Russia cut off Belarus oil supply because they would not do as Russia demanded
  • 12 hours Anti-Macron Protesters Cut Power Lines, Oil Refineries Already Joined Transport Workers as France Anti-Macron Strikes Hit France Hard
  • 8 hours Beijing Must Face Reality That Taiwan is Independent
  • 14 hours Tesla Will ‘Disappear’ Or ‘Lose 80%’ Of Its Value
  • 19 hours China's Economy and Subsequent Energy Demand To Decelerate Sharply Through 2024
  • 1 day US Shale: Technology
  • 2 days Swedes Think Climate Policy Worst Waste of Taxpayers' Money in 2019
Alt Text

This Shale Giant Is Ready For A Rebound

Occidental Petroleum has come under…

Alt Text

Oil Falls Despite Major Outage In Libya

Oil prices fell on Tuesday…

Alt Text

Is This The End For Big Oil Dividends?

Big oil has been living…

Meredith Taylor

Meredith Taylor

Writer at Oilprice.com 

More Info

Premium Content

Oil Industry Banks On Shaky Plastic Bet

Even as oil demand is beginning to weaken this year due to a brewing economic slowdown, the oil industry faces a longer-term threat to oil demand as bans on plastic begin to multiply.

With cracks forming in oil demand in the transportation sector, the world’s largest oil companies, both publicly-traded firms and national oil companies, are increasingly diversifying their footprints. Integrated oil companies are stepping up investments in petrochemicals, viewing plastic as a more resilient source of demand than road fuels. 

“Oil use for cars peaks in the mid-2020s, but petrochemicals, trucks, planes and ships still keep overall oil demand on a rising trend,” the International Energy Agency wrote late last year. The IEA put out a special report on petrochemicals in October 2018, highlighting its importance to future oil demand.

Through 2040, the petrochemical sector accounts for 5 million barrels per day (mb/d) of oil demand growth, the IEA estimates, while oil consumption in cars is already beginning to plateau, and will hit a peak in the mid-2020s. Oil consumption in the transportation sector is set to grow in the developing countries, but electrification in advanced economies will offset those increases. Related: This Giant Oil Field Just Hit An Impressive Production Record

The stakes are high for the oil industry. Facing a shrinking market in transportation, their last line of defense against peak demand is petrochemicals. Petrochemical assets can be a hedge against peak demand not just in terms of absolute growth in demand. In a world in which oil demand is in decline, prices will be low, which offers these companies a low-cost feedstock for plastics and other petrochemicals. The oil majors have begun investing billions of dollars in ethane crackers, which turn natural gas, gas liquids and oil into the building blocks of plastic.

This is occurring around the world. China has $100 billion in the works for various petrochemical complexes aimed at turning oil into chemicals and plastics, according to Citi. ExxonMobil has plans to spend $20 billion on its “Growing the Gulf” initiative over the next decade, a series of petrochemical complexes and refineries on the Gulf Coast. Saudi Aramco just spent nearly $70 billion to take over Sabic, a Saudi petrochemical giant. “Our strategy is to be the leader in energy and chemicals, not only in energy,” Amin Nasser, Aramco’s CEO, said last year. “We will be the leader in chemicals.”

However, even as the ground is beginning to look shaky for the oil industry when it comes to road transit, a growing number of analysts are casting doubt on the heady growth figures for plastics, as Bloomberg reports.

A proliferation of bans on plastic bags, utensils, straws and other measures to limit plastic consumption could slash oil demand growth in the petrochemical sector to just 1.5 percent annually, just a third of its historical growth rate, according to Bloomberg and Accenture. “Oil companies are saying, no problem, we’ll invest in petrochemicals,” Paul Bjacek, a principle director at Accenture, told Bloomberg. “But petrochemicals, after the circular economy happens to the maximum extent, is likely to be a low-growth market.”

Between 2007 and 2016, more than 240 local governments in the U.S. passed laws limiting the use of plastic bags. But the movement has recently been picking up steam, with bans passing at higher levels. New York passed a plastic bag ban, following in California’s footsteps. Oregon and Maine are close to banning plastic bags. The European Union passed a continent-wide ban on single-use plastics, which will take effect beginning in 2021. Related: U.S. Total Oil Output Poised To Set New 2019 Record

“It adds some uncertainty from a demand standpoint as the oil industry is looking more and more to chemicals for diversification,” Robin A. Waters, IHS director of plastics planning and analysis, told Bloomberg.

Better recycling could also undercut plastic use. As it stands, only a small fraction of plastic is recycled – somewhere in the range of 10 to 15 percent. Much of the plastic used by consumers is tossed in a landfill either because containers are uneconomical to recycle, unable to be recycled, soiled, or mixed in with other non-recyclables.

Major companies have announced plans to clean up their acts, facing pressure from consumers concerned about climate change and oceans filling up with plastic. “If they don’t play an active role in this, they’re going to see brands and customers de-select plastics,” Ellen Martin, a vice president for Closed Loop Partners, an investment firm focused on creating a circular economy, told Bloomberg. “It’s a threat to their overall business.” McKinsey & Co. said that stepped up investment in recycling could slash virgin plastic use by nearly 60 percent by 2050.

“If companies push ahead with investment based on standard forecasts to expand petrochemical operations, stranded assets may lie ahead,” Christof Ruhl an economist on the advisory board of Crystol Energy, wrote in the FT earlier this year. Ruhl estimates that lower consumption of plastic bags could cut plastic demand by 3 percent annually through 2040.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play