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Polymer’s long-term demand prospects sharpens potential role for chemical feedstocks

  • Featuring
  • Mark Mozur    Michael McCafferty    Robert Stier    Richard Joswick
  • Commodity
  • Oil Petrochemicals
  • Topic
  • Environment and Sustainability Recycled Plastics

The emerging market for alternatives to virgin polymer feedstocks is as dynamic as ever. For the broader oil industry, understanding the drivers that underpin plastics are as crucial.

Over the past two decades, the petrochemical sector accounted for 40% of all net oil demand growth. But industry views vary on whether or not petchems will continue to buoy oil demand growth in the long-term, given the growth potential of alternative feedstocks—bionaphtha, for instance, is expected to reach 0.5 million mt of demand over the next couple of years—and the impact of regulatory bans on plastics use and corporate commitments to achieve minimum levels of recycled content.

Chemical feedstocks are projected to see relatively strong long-term growth

In an attempt to establish a baseline for required polymer supply and to assess the scale of long-term growth between competing feedstocks, S&P Global Platts Analytics has developed a bottom-up outlook for plastics demand that focuses on key drivers of end-use sectors—from transport to construction to single-use plastics and packaging.

The implications of this outlook are remarkable for plastics: Platts Analytics projects that total demand for polymers across all feedstock types could grow by an average annual rate of 2.5% over the next 30 years, climbing to 675 million mt by 2050.

Plastics end-use demand

In the absence of additional breakthroughs in recycling technology (and investments in capacity) or the further emergence of bio-feedstocks, a large share of this polymer demand growth is likely to be captured by hydrocarbons. This will push petchem feedstock demand to new highs even as an industry consensus continues to develop around the notion of peak oil demand.

From a modeling perspective, one factor underpinning this remarkable growth in polymer is the notion that while heavier liquid hydrocarbons have seen the dampening effects of the coronavirus pandemic and commitments at the state-level to the energy transition, petrochemical feedstocks have seen multiplier effects.

For one, the rise in personal protective equipment usage caused demand for polyethylene to hold steady in 2020 amid the broader economic downturn. In the medium-run, demand for packaging for consumer products is expected to grow exponentially. FedEx predicts that home deliveries in the US will double to 100 million packages per day by 2026.

Another multiplier effect is the role of polymers in lightweighting across the transportation sector.

In aviation, lightweighting is a common industry practice to reduce operational costs and improve fuel efficiency, while at the same time reducing the carbon footprint of air travel. It is estimated that a 20% reduction in aircraft weight can lead to a 10%-12% improvement in fuel economy. Though aluminum alloys are the most common structural material applied in aircraft lightweighting, carbon fiber-reinforced polymer composites are used in wings, cabin interiors, and aircraft control surfaces. The Boeing 787 is 80% composite by volume (and 50% by weight), compared to just under 1% of an older Boeing 757. The world's commercial fleet of aircraft numbers some 26,000. While turnover rates are traditionally low at 2% scrappage per year, the number of aircraft sent into storage has soared over the last two years. Over the long-term, the push for emissions reductions and cost savings will drive polymer demand in aviation.

A similar story is playing out in the automotive sector. Over the past several decades, the average plastic content of passenger cars in the US has grown from 20 kg per vehicle to over 200 kg of plastics and composites. With the emergence of alternative fuel vehicles, the incentive for lightweighting is as critical as ever to offset battery weight.

Platts Analytics adopts a relatively conservative view of automobile sales in the long-term, with older vehicles staying in the fleet longer and with driving habits changing over time. But even a conservative outlook would imply that the demand for plastics in passenger cars could grow to 40 million mt by 2050—a growth of 2.97% per year.

With aviation and automotive leading the way, growth is also expected in construction, textiles, and electronics.

Finally, the greatest single source of annual polymer consumption—and the subject of the greatest policy attention and forecasting uncertainty—is the demand for single-use plastics and packaging. At approximately 180 million mt per year, the demand for disposable plastic accounts for over 45% of total polymer demand across virgin and recycled polymer. Over 170 countries have pledged to significantly reduce the use of plastics in the coming decade.

This year saw the European Union's ban on plastic straws, forks, knives, and cotton swabs come into effect. Some countries like Kenya, Thailand and Rwanda have banned plastic bags, while Zimbabwe has banned polystyrene food containers. The newest country to enact a ban is Azerbaijan, which has outlawed the production, import, and sales of plastic stirrers and cutlery. But these bans account for only a small share of total single-use plastics, and the global distribution of current disposable plastic consumption reflects the potential for high growth worldwide.

Annual disposable plastics consumption per capita

Platts Analytics near-term data on polymer supply and demand has been matched to a noted World Bank study on country-level plastics waste. The data showed a wide range of consumption of single-use plastics worldwide. Leading the way are the US and the UK, with 102 kg per person and 95 kg per person of plastic waste generated each year, respectively. But the world average waste generated per year is only 24 kg per person. It is even lower in China at just under 15 kg per person.

If Platts Analytics' feedstock models are calibrated at the country-level to the prevailing consumption rates in the US and UK, annual demand for single-use plastics would reach as high as 510 million mt, more than 1/3 higher than today's total polymer supply.

Instead, Platts Analytics projects that regulatory measures and changing consumer habits could see per capita consumption rates in the US, the UK, and other OECD member states decline over the long-term. But this will be buoyed by demand growth in countries like China and India, where the ranks of the middle class will continue to expand. China has announced a plan to ban plastic bags by 2022—single-use straws in restaurants have already been banned—and India has rules in place governing the storage, production, and disposal of some single-use items. But these measures may not be enough to reduce topline growth.

This topline growth through 2050 represents a ceiling for total polymer supply across all end-uses. If no additional advances are made in scaling recycling operations or the production of bioplastics, Platts Analytics' models suggest this would lead to 13 million b/d of net growth in liquids feedstocks from 2021-2050, a remarkable result against the backdrop of peak oil demand and the energy transition.

This outlook implies there will be plenty of room for competition across all feedstock types, with the combination of recycled polymer and bioplastics gaining a share of long-term topline growth as capacity investments ramp up in the coming decades.

Annual demand growth, chemicals sector

S&P Global Platts is expanding its recycled plastics assessments beyond R-PET, having launched six new daily price assessments for recycled plastics in the US, Europe, and Southeast Asia. Read about the assessments here.