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Highlights

A new breed of plastic recycling plants capable of recovering crude and fuels from plastic waste is piling more pressure on global oil demand forecasts.

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While mechanical recycling of plastics has been around for years, advanced or chemical processing relies on combinations of pyrolysis, catalytic cracking and gasification to create synthetic fuels or feedstocks which can be fed into a conventional refinery.

The growing backlash against single-use plastics, in particular, has seen a number of companies looking to launch these new plants at commercial scale. Austrian company OMV's ReOil process dissolves and then cracks waste plastics into a short-chain "premium" light crude. The synthetic crude is then channeled into its Schwechat refinery to become fuel or feedstock for the plastics industry.

"It is the sweetest crude oil that I have ever seen in my life," OMV's CEO Rainer Seele said in a November strategy presentation. "That means that if you introduce it into the process, you would have no SOx and no NOX emissions."

OMV's pilot ReOil plant at it Schwechat refinery can produce up to 100 liters of synthetic crude per hour from 100 kilograms of waste plastic. Plans for a commercial plant will scale up the process to 2,000 kg/hour of used plastic.

Finland's Neste, the world's biggest producer of renewable diesel from waste, is also developing ways to turn liquefied plastic waste into a raw material, with plans to proceed to an industrial-scale trial this year. Neste hopes to process more than 1 million mt/year of plastic waste by 2030.

In the US, BP has agreed to buy up to 16 million gallons/year of ultra-low sulfur diesel fuel and naphtha blendstocks from Ohio-based plastics-to-fuel maker RES Polyflow. The company's first commercial production plant, due on stream this year, is designed to tackle low-value, mixed plastic waste which typically ends up in landfills or fouling the environment.

PETCHEM DEMAND BOOM

Although starting from a very low base, chemical recycling technology is gaining traction and, given further policy support, has the potential to eat into future oil demand, already under siege from the boom in electric vehicles and a shift to gas.

Led by plastics demand, the petrochemical industry is set to be the single biggest driver of oil consumption by sector over the coming decades, adding 5 million b/d of new demand by 2040, according to the International Energy Agency.

But the growing slew of policy initiatives to boost plastics recycling rates means more waste should be available as the chemical technology matures.

"These could reduce or cause peak petrochemical demand growth in the future, especially considering a significant amount of aromatics and olefins are used within the plastics industry," consultancy Wood Mackenzie's senior vice president for chemicals Steve Zinger told a petrochemical industry conference in San Antonio last week.

Given the expected volume growth in plastic recycling, S&P Global Platts Analytics forecasts that more than 12% of total global virgin polymer demand will be made up of recycled plastics in 2030, up from 7% in 2015.

WAR ON PLASTICS

There is certainly no shortage of raw plastic waste to process. Currently, only 15% of commodity plastics are recycled globally with the majority ending up in landfills, furnaces or in the environment.

Europe has the highest recycling rates with about a third of the 27 million mt/year of plastic waste generated currently collected for recycling. But Brussels wants to move even faster, targeting an increase in the amount of plastic recycling to 50% by 2030.

In the US, the American Chemistry Council estimates that just a quarter of recoverable plastics destined for landfill could support the production of 59,000 b/d of clean diesel and 29,000 b/d of naphtha from advanced recycling.

Higher average collection rates for recycling would mean a step change in recycled fuels from plastics, reducing refiners demand for crude oil.

The IEA estimates that a doubling of recycling rates to 34% globally would lead to a reduction in oil demand of 1.5 million b/d by 2040 compared to its base case scenario.

Coupled with tighter expected regulations on plastics, a doubling of recycling rates will reduce global oil demand by about 3 million b/d in 2040, BP recently forecast.

Some believe the impact of potential bans on plastics and greater recycling on oil demand is still being underestimated.

BP's former chief economist Christof Ruhl has warned that lower use of single-use plastics, in addition to a rise in the penetration of recycled plastic to 25% by 2040, would shrink oil demand from petrochemicals in 2040 by more than 20%.

"[This] could bring projected peak oil demand forward by a decade," Ruhl said in a February article. "If companies push ahead with investment based on standard forecasts to expand petrochemical operations, stranded assets may lie ahead."

Widespread bans on single-use plastics and packaging are complicated by the carbon footprint of their alternatives such as glass and metals. That means chemical recycling will likely have a much bigger role to play. Either way, oil demand forecasts come out losing.

-- Robert Perkins, robert.perkins@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com