By Irina Slav
Petrochemicals are Big Oil’s big hope for the future—the distant future. Petrochemicals are used in thousands of products, with the biggest group among these being single-use plastic products. The bad news for oil is that green initiatives around the world are mounting and many of them are targeting precisely this group of products.
The latest such initiative came from Kenya. Last month, the East African country introduced what is considered one of the toughest bans on plastic bags globally. The making, marketing, and use of plastic bags carry fines of up to US$38,000 or up to four years imprisonment. It’s a decisive step in tackling the piles of plastic bags that so often end up inside cows, raising fears of plastic contamination of beef.
Praiseworthy as this ban may be (although some bag manufacturers have warned that the new rules could result in the loss of 80,000 jobs), it’s only a small step in the right direction. Bloomberg Gadfly’s Julian Lee, an oil strategist, points out that plastic bags represent just 1 percent of all the disposable plastic trash that enters the world’s oceans and collects in one of several notorious garbage patches.
The problem for the oil industry is that small steps like this could go a long way toward stymieing the growth in global oil demand. According to estimates from the International Energy Agency, plastics production will account for 4.9 million bpd in oil demand growth until 2040, followed by aviation, accounting for 3.5 million bpd, and freight, which will account for 3.4 million bpd in demand growth in the period.
The rise of plastics that started in the first half of the 20th century was largely driven by their low price compared to alternatives such as glass or metal for containers and, of course, their disposability. This is exactly what has turned plastics into one of the worst environmental problems today. Plastics do not degrade, they only break down into ever-smaller pieces and contaminate everything around them in the process.
With the growing number of initiatives aimed at curbing and eventually eliminating the use of disposable plastic products or finding alternatives to them, the oil industry’s focus on petrochemicals might need to shift towards a more biodegradable future, just like their focus on crude oil is having to shift to natural gas and renewables.
There are already many biodegradable materials used in containers and other products, but there’s one problem: they don’t last as long as oil-derived plastics. That makes them more expensive and compromises their future growth chances. It has also spurred a lot of research into ways to make biodegradable polymers as durable as those derived from fossil fuels.
This research is already yielding results as scientists come up with ways to make, for example, cornstarch-based polymer materials hardier without adding substantially to the cost of their production. These developments could become a major challenge for the petrochemical industry, as there are no signs that the global green drive will recede anytime soon. In all likelihood, it will only intensify and accelerate.
It might be a good idea for Big Oil to start thinking about a further diversification away from its core business.