Plastics backlash to have limited impact on petrochemicals, oil – Fitch

Public and regulatory backlash on single-use plastic because of ocean pollution is likely to have only a limited impact on petrochemical and oil and gas companies, Fitch Ratings said in a note.

“An outright global ban on all single-use plastic would reduce demand for petrochemicals and therefore oil and gas, but we think the impact would be limited to low single-digit numbers. A global outright ban is not our base case and we expect single-use plastics to be gradually phased out over the long term, during which producers could offset the loss in demand with growth elsewhere,” the note said.

The backlash against plastics has been gathering pace in the past few months fuelled by prominent campaigns against ocean pollution. The EU has introduced several initiatives under its Plastics Strategy, including a proposed ban on a range of single-use products, such as cutlery, plates and straws by 2021. There are several governmental and private-sector initiatives in the UK aimed at eliminating plastic waste. India hopes to eliminate single-use plastic by 2022. A number of global corporations have announced plans to phase out various single-use plastic items.

The western Indian state of Maharashtra recently banned use of plastic bags, prompting fears that other state might follow too.

Environmental and sustainability concerns focus on mixed-grade polymers that are too costly to separate and recycle and therefore end up in landfill sites and oceans, Fitch said, adding that the impact on the petrochemical and oil and gas industry is likely to be limited.

“Shell estimates that if all single-use plastic is eliminated globally, demand for petrochemicals will be reduced by 3%-4%. BP expects environmental concerns over plastics to trim global oil consumption by 2 million barrels per day by 2040, which is only 2% of current oil demand. Moreover, BP projects that non-combusted use of fuel, particularly as feedstock for petrochemicals, will be the fastest-growing source of overall demand for oil and gas,” the note pointed out.

The largest oil and gas companies, including Shell, Saudi Aramco and Total, will continue with their multi-billion dollar investments in petrochemical assets and there have been no apparent signs of a slowdown due to the plastics backlash, Fitch said.

“Despite an expected drop in single-use plastics demand, other applications such as industrial products, adhesives and coatings, construction insulation, and durable consumer goods, will help offset the overall impact on petrochemicals and, consequently, the oil and gas sector. The gradual phasing out of single-use plastic will allow time to adjust production. However, smaller and less diversified polymer producers are more likely to be affected by a structural decline in demand for these products in the medium term,” it added.

However, according to Fitch, current pressure may lead plastics producers to refocus their research and development (R&D) on sustainability and making products more recyclable, working in conjunction with converters.

“Research into alternatives such as bioplastics is also underway and involves major chemical producers such as BASF and Dupont. The transition to new technologies is likely to be slow. The recycling of polymers into fuels is a possible solution, although R&D is in its early stages,” it added.

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