Carbon Tracker released a new report examining oil and gas involvement in the plastics industry, “The Future’s Not in Plastics: Why plastics demand won’t rescue the oil sector”. See some of the key insights below.
Why is plastic important for the fossil fuel sector?
Although plastics make up a relatively small percentage of total oil demand (9%), they are the major driver of future oil demand growth. BP forecasts (pre-COVID) expected plastic to make up 95% of their expected net oil demand growth until 2040. Low prices for ethane from fracked gas also drove a boom in investment in the petrochemical industry (which includes plastic). Oil and gas companies have seen petrochemicals and plastics as an opportunity for growth, when demand for oil and gas might otherwise be limited.
What’s wrong with expecting plastics to keep growing?
Oil and gas companies expect the demand for plastic to continue to grow, at a rate of about 4% per year. However, there are several problems with this business-as-usual assumption:
- Plastic is responsible for about twice as much CO2 emissions per tonne than oil. In order to limit global warming to 1.5°C, CO2 emissions must be drastically reduced. If emissions were cut to the level required by the Paris agreement AND plastics continued to grow, plastic would make up a huge 19% of the global carbon budget.
- There are many “externality costs” of plastic, costs to society that are generally not included in the price of creating and selling plastic. These include things like air pollution, collection and sorting costs, ocean clean-up, microplastics, and health costs to workers. Carbon Tracker estimates that the externality costs per tonne of plastic are nearly equal to the actual cost of that plastic. The companies producing plastics are not being taxed on the externality costs, leaving more vulnerable communities to deal with the impacts of plastic waste and production.
- Consumers are fed up with the plastics industry. 70-80% of respondents in a 2019 poll were in favor of a ban on single-use plastics, and supported requiring manufacturers to pay for recycling costs. Governments may start to take more action to limit plastic production as a result of consumer pressure, as well as other factors.
- There is evidence that demand for plastics has peaked in OECD countries. Since OECD countries make up half of global plastic demand, dropping demand will have a strong impact on overall plastic demand.
What happens if plastic demand doesn’t grow?
Oil and gas companies are relying on the growth of the plastics sector. If demand for plastics actually drops, as Carbon Tracker predicts that they will, this will have implications for fossil fuel companies.
The petrochemical industry has invested highly in capacity for ethylene and propylene production (the key chemicals in plastic), and may end up with more capacity than demand. This could lead to:
- Low prices for ethylene, and thus plastics
- The infrastructure and investments in capacity will become “stranded assets”, which will not be able to achieve the value that was invested into them
- Further opportunities and projects for expansion and growth in this sector will be limited or cancelled
- The oil industry will lose its main opportunity for growth
- Share prices in oil companies will be impacted
For further information, read the full report here.