Oil industry uses plastics to address energy shift

WASHINGTON — Amid an inexorable shift toward more electric vehicles, oil and gas producers are increasingly turning to plastic to stay afloat, even as the sector faces challenges of its own.

Plastics and chemicals now account for 15 percent of global demand for the petroleum products used to produce them.

But as “robust growth” continues, the figure should rise to 25 percent by 2050, Guy Bailey, head of oils and chemicals markets at research firm Wood Mackenzie, told AFP.

This “reflects both the importance of plastics, which are integral to all aspects of modern life and enabling the energy transition, and the long-term decline in fuel demand as the transport sector electrifies.”

Bailey added: “The petrochemical sector plays an important role in the downstream sector.”

– Risky transition –

What is less clear is whether plastics will provide a sufficient basis for the oil industry to survive.

“If you take a barrel of oil, most of what that barrel of oil is used for is transportation fuel, gasoline, diesel fuel, aviation fuel. Only a small fraction of that is used to make plastics,” said Martha Moore, chief economist at the American Chemistry Council (ACC), an industry trade association.

But “this should change as electric cars become more affordable,” said Stephen Fries of the Peterson Institute for International Economics (PIIE) and a member of the UK Climate Change Committee.

“Given that plastics make up only a modest share of a refined barrel of oil, they are unlikely to be a long-term solution for the industry,” said Fries, who also works at the Institute for New Economic Thinking.

Compounding the problem, Wood Mackenzie’s Bailey says, with the global energy transition, the plastics industry itself faces risks from both “the need to reduce carbon emissions and address plastic waste.”

Tom Sanzillo, a financial analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), offered a similar caution, drawing a parallel between the current situation in the petrochemical industry and the decline in coal production.

“They think their new market is petrochemicals, but even there the demand won’t be as big as they think,” he told AFP.

– Recycling –

Whether plastics makers buy the raw materials they need or source them themselves, they are increasingly turning to recycling to diversify their operations, analysts say.

Manufacturers hope the plastics agreement, to be negotiated this week in Busan, South Korea, will provide a clear path to the future.

“Over time, our goal is to eliminate the need for new oil and gas to make plastics,” said Ross Eisenberg, head of ACC’s plastics division, which will be based in Busan.

More and more manufacturers are “investing in recycling and becoming recyclers themselves,” he said.

“They realize they can actually use the product as a raw material and not have to dig new resources out of the ground.”

But that requires extensive investment in infrastructure, Eisenberg said. “This global agreement can really help us with that.”

Products will increasingly need to be designed with recycling in mind, analysts say.

“More demand for plastics will be met by recycled and reused materials,” PIIE’s Fries said, adding that “the changes facing the industry will gradually intensify.”

In his opinion, “there is no simple solution for the oil and gas industry. They will have to change.”

July/BBK

Julie Chabanas

AFP