Oil industry threatened by projected fall in plastic demand
A new report by think tank Carbon Tracker and consultancy SYSTEMIQ has found that global efforts to tackle plastic waste could result in £300 billion of stranded petrochemical assets for the oil industry as it bets on sustained demand for plastics to offset falling demand for fossil-based fuels and energy.
The report, entitled ‘The Future’s Not in Plastics’, finds that virgin plastic growth could fall from four per cent per year to below one per cent, with overall demand peaking in 2027.
Such a situation could lead to huge losses for investors already facing historically low plastic prices due to overcapacity. The industry plans to expand the supply of virgin plastics by a quarter over the next five years at a cost of £300 billion to compensate for falling demand for fossil fuels in transport and energy.
Governments and businesses around the world have pledged action against plastic waste and the proliferation of single-use plastics, which Carbon Tracker estimates the societal externality cost in terms of carbon dioxide, associated health costs from emissions, collection costs and ocean pollution to be around £760 per tonne, or £256 billion, a year.
BP and the International Energy Agency estimate that plastics demand will be the largest driver of oil demand growth in the coming years, making up 95 to 45 per cent of growth to 2040 respectively.
The levels of plastic waste in the environment are gaining more and more recognition and the need for action is becoming clearer, with a recent report by The Pew Charitable Trusts and SYSTEMIQ – ‘Breaking the Plastic Wave’ – estimating that the amount of plastic in the oceans could triple by 2040 without concerted action from governments.
“Remove the plastic pillar holding up the future of the oil industry, and the whole narrative of rising oil demand collapses,” said Kingsmill Bond, Carbon Tracker Energy Strategist and report lead author.
Climate change aspects of plastic are also set to impact the oil industry, with governments making moves to transition towards net-zero economies. The analysis finds that with CO2 produced at every stage of the plastic value chain, including being burnt, buried or recycled, plastic releases around twice as much CO2 as producing a tonne of oil.
“There are huge benefits in the change from the current linear system to a more circular one. You can have all the functionality of plastics but at half the capital cost, half the amount of feedstock, 700,000 additional jobs and 80 per cent less plastic pollution,” said Yoni Shiran, lead author of Breaking the Plastic Wave.
Plastic waste policy
With policy around the world pushing for reductions in plastic usage and waste, the pressure on the petrochemical sector is expected to grow. In the EU, plastic waste has been made a priority with the launch of its Plastics Strategy in 2018, which aims to build markets for recycled plastic, while reducing plastic waste and limiting the use of single-use plastics. The European Parliament has also voted to ban some single-use plastics, which would stop products such as straws and cotton buds being sold on the EU market.
Looking ahead, a tax on plastics is due to begin in the EU in January 2021, where member states will have to pay €800 per tonne of non-recycled plastic packaging waste into the EU’s general budget.
This focus on plastic waste has been brought into even sharper relief by China’s ban on the import of post-consumer plastics at the start of 2018, with countries around the world having to wake up to the need to take action at home with the closure of the Chinese market and saturation of alternative destinations.
Sian Sutherland, A Plastic Planet co-founder, commented: "Sometimes it feels like we are trying to turn the plastic tide one thimble at a time; and then a report like this proves that all our collective efforts are worth it.
"For far too long there has been this delusional narrative coming from the fossil fuel industry to invest hundreds of billions of pounds to grow the supply of virgin plastics by a quarter over the next five years. This is all in the name of compensating for the impact of clean energy technologies which are driving their profits down.
"It's a prime example of backward thinking from these oil companies to ignore the mass movement against plastic pollution and believe their future wealth lies in this toxic, indestructible material which will last on the planet for centuries and is crucially something people no longer want.
"Governments around the world are starting to take action to cut plastic, organisations too, and the public are making themselves heard. Perhaps the major oil companies should invest in cleaner alternatives and place their eggs in a different basket which won't leave a lasting impact on the planet for future generations to come."