How Circular Plastics Economy is impacting long term oil demand growth?

oil demand growth

For long term growth, the oil industry is shifting towards petrochemicals, as vehicle efficiencies and electrification made transportation a declining market. However, petrochemicals mostly means ‘plastics’, which are now in the sustainability spotlight.

Not only does the Oil & Gas industry see the Petrochemicals industry as an increasingly important source of demand, but as a path for its own diversification efforts.

The public, environmentalists, brand owners, institutions and now governments are taking steps to this growing wave 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?
Issue with Plastics

It is a big challenge to resolve this increasingly sensitive and complex issue. The initial point to understanding the implications for natural resources and the environmental consequences of shifting away from plastics must be: what can replace Plastic? It is necessary to review the entire supply chain, in order to solve the issue of environmental impact.

Plastics are the first choice for many as they are cost effective and efficient, as well as searching a replacement for their many uses is going to be problematic, complicated and expensive requiring a commitment from the brand owners, public and governments. But this will take time.

A circular plastics economy can reduce the impact of disposal while having minimal impact on chemical demand growth due to increasing population, incomes and living standards. It is significant to note that waste management is a major problem, primarily in developing countries, and better management will take a long way to address plastics waste in the oceans and the negative public perception.

Ethane, naphtha and natural gas liquids obtained from natural gas will remain the primary feedstock petrochemicals and plastics. And the chemical industry will continue to grow requiring continuous investment. By 2035, chemicals will contribute for almost all oil demand growth. According to the prediction, 20% of total oil demand will come from the petrochemical sector by 2035.

Implementation and Intention are not in parallel to each other

Due to the negative perception among consumers and manufacturers, plastics are mainly used for one time use applications. Everyone is working towards reducing plastics waste derived from single-use items and packaging. The proliferation of re-usable water bottles to outright bans on plastic bags is one of such efforts that are being put into practice. With all this efforts, the goal is to reduce the usage of plastics and create a circular plastics economy.

For food packaging, the use of plastics reflects a complex story, as it helps prevent spoilage that leads to reduced food and transportation costs as well as lower energy requirements. So, moving away from plastic packaging can result into increased spoilage and therefore more water, land, equipment, pesticides and so on being consumed. To fully understand the impact of shifting away from plastics from the equation, it is necessary to review the entire supply chain.

What can replace Plastic?

Plastics are consumed more in non-durable applications on a daily basis, as compared to other resources. Paper is often suggested as an alternative to plastic, for example with drinking straws or coffee cups. However, paper has a greater carbon impact than plastic. It also has problems with recycling, for instance, film backed paper such as those in paper coffee cups. Cardboard, metal and wood are options but in most applications are not a suitable alternative. To help highlight this notion, in Europe plastics account for half of all packaging yet account for less than 20 percent of packaging materials by weight. The solution to the plastics problem is not an easy finding.

Who will take step towards the plastics problem?

Eventually the consumer and/or brand owners will have to accept the higher costs associated with replacing the efficient and cost effective plastic solutions currently in place. But these new solutions are not clear cut and it will take time to properly address all aspects of the pollution problem.

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