Petrochemical feedstocks made up about 12% of oil demand in 2017 but Wood Mackenzie Chemicals sees significant growth over the next 20 years as demand for plastics and fibres grows.
Faced with the prospect of declining use in transportation as vehicle efficiencies and electrification bite, the oil industry is turning to petrochemicals for long-term oil demand growth. However, “petrochemicals” mostly means “plastics”, which are now in the sustainability spotlight.
The public, environmentalists, brand owners, institutions and now governments are responding to the rising tide of negative perception of plastics caused mainly by their improper disposal after use. The reaction to their environmental impact has been to increase efforts to reduce, ban plastics and/or increase reuse and recycling.
How does that impact the potential for chemicals to be the vehicle of long-term oil demand growth? This is a massively complex and increasingly sensitive issue and one that won’t be effectively resolved quickly or easily.
Plastics are just too efficient to be easily replaced
Understanding the implications for natural resources and the environmental consequences of shifting away from plastics must take into account the entire supply chain. What replaces plastics? Metal? Wood? Paper? Glass?
There is little doubt that much, much more can be done to reduce waste and consumption. One of the key issues is that plastics, particularly in packaging applications, are incredibly efficient and cost effective; finding an alternative solution is not easy. Alternatives can also be costly and few want to incur the burden of higher costs. The consumer and/or brand owners eventually will have to absorb the higher costs but are they willing to do so?
Another important point to bare in mind is the size of the fibre industry, another large market that falls under the petrochemicals umbrella. It is approaching 100 million tons and we expect it will keep growing with rising incomes and improving standards of living. Polyester, one of the man-made fibres, is the largest of these markets by far. However, there is no meaningful alternative to meet growing fibre demand than polyester, so replacing this material within its current capacity would be near-to-impossible.
Intentions and implementation are not aligned
The importance of a circular economy for plastics is evolving from a minority view to a broader consumer desire via governments, brand owners and consumers. However, the solutions to overcome current barriers are not simple and clear. Many questions need to be answered when considering the wider implications, including the impact on natural resources.
For example, plastics are extensively used in food packaging to prevent spoilage, which in turn reduces transportation costs, food costs and energy requirements. But if plastic food packaging is banned, spoilage increases and this will lead to more land, water, pesticides, equipment and so on being consumed. In the end, is this better for the environment? Further analysis is required to properly measure the full impact on the entire supply chain.
Rapidly growing need for circular plastics economy
What of the circular plastics economy? There is little doubt increased plastic waste needs to be addressed and a circular economy helps reduce waste .
Recycling volume is a function of economics, waste management and sustainability initiatives/regulation. In order to move towards a circular plastics economy, plastic companies must innovate toward recyclable applications, participate in the recycling value chain and move away from single-use products.
A number of governments have recently taken measures to inspire this transition. In January 2018, China, the world’s largest importer of recycled material, implemented a ban on the import of plastic waste. This initially increases virgin resin demand in China and will also advance recycling investments in other countries. Canada’s Waste Free Ontario Act encourages innovation in recycling processes and requires producers to take full responsibility for their products and packaging, imposing a target of 80% waste diversion by 2050. Finally, the European Union has stated its intentions for 2030 that 1) All plastic packaging is reusable or recyclable; 2) More than half of plastic packaging waste will be recycled; 3) Sorting and recycling capacity will increase dramatically.
Despite backlash, plastics growth will continue for the next 20 years
Despite all of these issues, chemical demand will persist for the next 20 years due to an increase in global median incomes, growing populations and an improvement of living standards. While there will be lower growth rates, the sheer size of the market today will generate sizeable volume growth.
You can read more about our thoughts on a circular plastics economy at woodmac.com.