Plastic-trash crisis puts oil firms’ lifeline at risk

Bloomberg

As the world strives to wean itself off fossil fuels, oil companies have been turning to plastic as the key to their future. Now even that’s looking overly optimistic.
The global crackdown on plastic trash threatens to take a big chunk out of demand growth just as oil companies sink billions into plastic and chemicals assets. Royal Dutch Shell Plc, BP Plc, Total SA and Exxon Mobil Corp. are all ramping up investments in the sector.
Renewed emphasis on recycling and the spread of local bans on some kinds of plastic products could cut petrochemical demand growth to one-third of its historical pace, to about 1.5 percent a year, said Paul Bjacek, a principal director at consulting firm Accenture Plc.
“Oil companies are saying, no problem, we’ll invest in petrochemicals,” Bjacek said. “But petrochemicals, after the circular economy happens to the maximum extent, is likely to be a low-growth market.”
Demand for gasoline is flatlining as electric vehicle sales surge and conventional cars become more efficient. But oil is essential for much more than just transportation: It’s broken down into chemicals and plastics used in every aspect of modern life. Growth in demand for chemicals already outstrips the need for liquid fuels, and that gap will widen in coming decades, according to the International Energy Agency.
Crude drillers and refiners see that as their safe haven against the fading outlook for fuel, ensuring that they’ll have a piece of a more robust market for their hydrocarbons.
New oil refineries are being designed to produce less fuel and more chemicals.
China is leading the way, with more than $100 billion invested in crude-to-chemicals projects over the next five years, according to Citigroup Inc. analysts led by Horace Chan.
Projects by companies including Hengli Petrochemical Co. and Rongsheng Petrochemical Co. will devote as much as half their capacity to chemicals, mostly paraxylene, a material that China imports to make polyester and plastic bottles. That’s a sharp increase from the 10 percent chemical production at a typical refinery and as much as 20 percent at modern refineries integrated with chemical plants.
“They’re building these units because they need the fuel, but they are sort of future proofing it,” said John Roberts, an analyst at UBS Securities.
“It’s acknowledgment that there is a peak coming in the global fuels market.” Exxon plans to expand its Asian and North American chemical-making capacity by 40 percent in anticipation of rising demand.
But consultants and analysts are sounding the alarm that petrochemical demand is heading south of earlier forecasts. Images of waste fouling the oceans are drawing government bans on single-use plastics from the European Union to India and California.