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With new oil discoveries failing to keep pace with consumption, and the cost of recovering the oil that remains increasing dramatically, the big oil companies have turned away from their traditional role of fuelling the global economy. Instead, they have turned to petrochemicals – especially plastics – as the best means of remaining profitable. According to IEA analyst Tae-Yoon Kim:
“In the New Policies Scenario [IEA’s main projection to 2040], global demand for ethylene, propylene and aromatics grows by 60% between today and 2040, and total oil demand for the petrochemical sector rises from 11m bbl/d today to 16m bbl/d in 2040.”
However, at the start of 2018, this rosy future has been dealt two major body blows. The most painful of these is the implementation of China’s ban on imported foreign waste for recycling:
“The impact of this will be far-reaching. China is the dominant market for recycled plastic. There are concerns that much of the waste that China currently imports, especially the lower grade materials, will have nowhere else to go.”
This comes on the back of growing environmental concerns about plastic waste. The likely result is that states will adopt policies designed to dramatically cut the use of plastics:
“One way forward might be to limit its functions. Many disposable items are made from plastic. Some of them are disposable by necessity for hygiene purposes – for instance, blood bags and other medical items – but many others are disposable for convenience.
“Looking at the consumer side of things, there are ways of cutting back on plastic. Limiting the use of plastic bags through financial disincentives is one initiative that has shown results and brought about changes in consumer behaviour. In France, some disposable plastic items are banned and in the Britain, leading pub chain Wetherspoons has banned disposable, one-use plastic drinking straws.”
If this was not bad enough for Big Oil, Anna Hirtenstein at Bloomberg has more bad news:
“Companies that make packaging from plants instead of fossil fuels are starting to challenge the oil industry’s ambition to increase the supply of raw materials for plastics.
“Use of bioplastics made from sugar cane, wood and corn will grow at least 50 percent in the next five years, according to the European Bioplastics Association in Berlin, whose members include Cargill Inc. and Mitsubishi Chemical Holdings Corp. German chemical giant BASF SE and the Finnish paper maker Stora Enso Oyj have stepped into the business to meet demand from the likes of Coca-Cola Co. to Lego A/S.”
While a handful of companies turning to bioplastics will not be sufficient to crush the growth in petrochemicals, they do offer policy makers a route to a future ban. The reason we have so far failed to dent oil demand as a whole is because there is no substitute for the diesel oil that global agriculture, industry and transport depends upon. Nor is it convenient – at least in the short-term – to dispense with car and air travel. Bioplastics, by contrast, offer a workable alternative to at least the proposed growth in petrochemicals; and may even reduce some of today’s consumption.
The broader question, of course, is how Big Oil can remain profitable without using the growing income from petrochemicals to offset the increasing costs of recovering the world’s remaining – often small and hard to develop – oil deposits.
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