Consumer push for sustainability masks massive growth in plastic demand

This is the first installment in a three-part series exploring oil, plastics demand and sustainability.

Barely a week goes by without another headline decrying the use of plastics and plastic packaging in Europe. Plastics are clogging up our oceans, overflowing our landfill sites and even finding their way into our food.

But as the world wakes up to the environmental damage caused by plastic waste and pollution, it may come as a surprise to learn that the industry is looking to dramatically ramp up production, not slow it down.

The International Energy Agency now forecasts demand for petrochemical feedstocks – the specific group of refined oil and gas products used to produce plastics – to grow by nearly 5 million barrels per day to 2040. Meanwhile, the petrochemicals sector itself is now being positioned as the largest driver of global oil consumption at more than a third of the growth in oil demand to 2030, and nearly half to 2050.

In the US, ready access to low-cost unconventional oil reserves has already led to the investment of more than $200 billion in new chemical manufacturing facilities since 2010, while in Europe new investments are counting on exports of US chemicals to produce even more plastics for consumption worldwide. Coal and methanol to olefins projects in China are driving self-sufficient plastics production in East Asia. At the same time a wave of new capacity additions for ethylene – one of the major building blocks of plastics production – in South Korea, India and the Middle East are being met by an average global demand growth year on year of 3.4% from 2018 to 2028 according to S&P Global Platts Analytics.

As the public backlash against plastics intensifies, however, the industry is being forced to manage a difficult double act: meet growing demand while attempting to transition from a single-use economy to true sustainability.

Media spotlight drives policy

Reducing our reliance on single-use plastic and boosting recycling rates is certainly getting lots of attention in the media at the moment and that is a good thing. The 2017 BBC documentary Blue Planet II may have been a turning point, bringing home the scale of the damage plastics are doing to the world’s oceans. The shift in opinion against plastics has been as decisive as it has been central to recent decisions taken to curb their usage.

The European Commission is now moving aggressively to implement stricter recycling measures, the UK is proposing a ban on plastic straws and cotton buds as part of a 25-year plan to eliminate plastic waste, and India is committed to doing the same, only by 2022. Elsewhere, brand-owners such as Coca-Cola, Evian, Unilever and Nestle have committed to higher standards of product design and recycling content targets, and in April last year, supermarkets across the UK signed up to a ‘plastics pact’ which set targets to use 30% recycled material in all plastic packaging.

Yet while efforts are clearly being made to reduce the production of the world’s most harmful plastics, the focus until now has been almost entirely centred on single-use plastics. Legislation to restrict disposable plastic is an obvious win for legislators in Europe, representing a kind of low-hanging fruit to appease both consumers and voters, but the fact is these efforts are likely to do little to offset the massive underlying growth of chemical products globally. The truth is that plastics and the petrochemicals that are used to produce them are an integral part of modern society, and that is not going to change any time soon.

Plastic is everywhere

Chemicals derived from oil and gases are used in just about everything. Besides the manufacture of plastic straws, cotton buds, shopping bags and food packaging, they are used in digital devices, medical equipment and clothing. Synthetic rubber derived from the petrochemical butadiene is used in tires for cars, trucks and bicycles. Polypropylene – a polymer derived from cracking the hydrocarbon chains of distilled fractions of oil and then connecting the by-products – is used to keep tea bags from falling apart.

Beyond even tea bags, however, the attractiveness of plastics also extends to investments in clean energy infrastructure. Silicone is used in solar cells and thermoplastic foams are needed to make wind turbine blades lighter and more durable. Plastics also compose many of the materials needed for the light-weighting of electric vehicles –a fleet expected to number 280 million in 2040, according to S&P Global Platts Analytics.

To achieve the grand challenge of reducing our global carbon footprint, plastics will continue playing a crucial role in leading the transition away from fossil fuels to low-emission, low-cost alternatives.

Investment and innovation

Given the vital role plastics are expected to play in meeting the needs of future economies, major oil and gas companies have already begun moving to integrate downstream assets within their operations. For oil companies with deep pockets, the focus on major downstream initiatives in petrochemicals is both an effort to diversify portfolios and also a hedge against future reductions in road transportation fuels as the world moves to electric powered vehicles.

The recent acquisition by Saudi Aramco of Saudi Basic Industries Corp., the Middle East’s largest producer of plastics and chemicals, is one of many examples of oil giants that now perceive chemicals to be one of the future growth engines of the economy. Last year the company announced its latest investment will be the building of a crude-to-chemicals complex with a capacity to process 400,000 b/d of crude to produce 9 million mt per year of various petrochemicals. News quickly followed that Aramco will be investing $100 billion in chemicals over the next decade and will use 70% of its crude oil in petrochemical production.

Almost paling by comparison then, was news last month of the launch of the Alliance to End Plastic Waste, a partnership of companies committed to spending $1 billion to keep plastic waste out of the environment. Despite grabbing headlines, the pact seems unlikely to tackle the production problem at its source. The signatories in the alliance include Shell and Exxon, companies that are actively investing many more billions building integrated chemical production plants worldwide. With global production of more than 300 million metric tons of plastic each year and massive growth expected worldwide, sustainability concerns are unlikely to temper plastics demand.

However, many companies are beginning to see the economic potential in building infrastructure for plastics disposal and re-use. In 2017, furniture giant IKEA acquired a 15% stake in a Dutch polypropylene and high density polyethylene (HDPE) recycling plant. Petrochemical giant Borealis acquired German recycler mtm plastics in 2016 and Austrian recycler Ecoplast in 2018. Add to that list the purchase last summer of French recycler Sorepla by polyethylene terephthalate (PET) producer Indorama.

There are also signs that oil and gas companies are strengthening their links with recycling players, with the signing of an agreement in August last year between oil and gas major MOL and German recycler APK to support completion of the latter’s ‘Newcycling’ plant which will enable recycling of multi-layer packaging.

As the field of waste management evolves, the future of the industry may even lie in a new generation of plastic to fuel (PTF) conversion technologies, aimed at recovering synthetic crude oil from plastic waste. PTF may well be the first step in a move to a truly circular economy, irrespective of the massive increase in plastics demand that recent headlines seem to have missed.