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Big Oil’s Evil, Stupid Plan to Drown the World in Plastic

Fossil fuel companies, facing plummeting oil demand, are pouring their resources into plastics. A new report suggests that’s foolish.

A man wades through a landfill in Bulawayo, Zimbabwe.
Zinyange Auntony/AFP/Getty Images
A man wades through a landfill in Bulawayo, Zimbabwe.

What do you do if you’re an oil company with too much oil? You find a place—any place—to put it. If people aren’t driving or flying as much, they’re certainly having things delivered. That’s where the oil comes in, delivering the raw materials to make the plastic enveloping all those Amazon and Postmates orders or to make bottles of water and various useless tchotchkes at home and abroad. 

There’s just one problem: According to a new report, plastics might not be as popular in coming years as oil companies hope. And with a dizzying amount of it on track for production, that could mean a lot of plastic waste with nowhere to go.

There are a couple ways fossil fuels can become plastic. Crude oil can be converted into naphtha, and gas converted into ethane, which are processed at sprawling industrial compounds into ethylene and plastic resins, then used to create consumer goods like grocery bags and single-use water bottles. The International Energy Agency has found that petrochemicals accounted for 14 percent of world oil demand in 2017. Prior to Covid-19, the agency projected that plastics alone—which account for about two-thirds of the petrochemicals industry—would make up 45 percent of the growth in oil demand in the coming decades. BP’s widely cited annual energy outlook was even more bullish, expecting plastics to account for a whopping 95 percent of net oil demand growth through 2040.

These kinds of rosy projections helped inspire the build-out happening now. During the last oil price crash in 2015, both privately owned and state-owned oil companies invested in plastic and other so-called midstream assets, since they seemed more insulated from market volatility than high-cost production schemes like fracking, offshore drilling, and tar sands. Developing countries’ ballooning gross domestic product promised to boost demand for plastics of all kinds, from the kind of single-use plastics used in packaging to those found in durable goods like cars.

But it’s not clear this strategy will pay off. A report published Thursday evening by the U.K.-based think tank CarbonTracker estimates that petrochemical investors in private and state-owned companies around the world are set to burn away $400 billion over the next five years as changing market dynamics sap appetites for their products, including via regulatory changes moving the world away from the kinds of new plastic products that oil and gas companies have been counting on.

Many of the new investments made in petrochemicals these last few years have been premised on demand for so-called virgin plastics—those not made from other recycled products—growing by 3 or 4 percent annually, where actual growth could be closer to 1 percent in the coming years. The price of ethylene and plastic resins has plunged alongside oil prices during the current downturn. Adding to the petrochemical industry’s stress is an increasing interest from governments and even corporations in so-called circular economy and zero-waste policies, utilizing recycled materials and more sustainable supply chains. The EU has recently adopted a Circular Economy Action Plan as part of its Green Deal, and in July it implemented a tax on plastic waste.  

“If you’re building a new petrochemical plant today, you must be building it in anticipation of ethylene prices going back to pre-Covid levels,” said Kingsmill Bond, an author on the CarbonTracker report and the group’s Energy Strategist. “The problem with this argument is that you’ve just got such a large amount of overcapacity today and more coming online, and it’s going to take years for demand to catch up with the new capacity being built. You’re likely to have relatively low prices for an extended period.”

Savvy oil companies are getting out. In June, BP sold off its petrochemical assets to the British chemicals firm INEOS for $5 billion. Just yesterday, Saudi Aramco announced it was shelving its $20 billion plan to build a petrochemical facility, while reevaluating whether to move ahead with purchasing 25 percent of a liquified natural gas facility in Texas owned by Sempra Energy.

But overall, new plants are still being built at a rapid clip. And they’re on track to pump out prodigious amounts of new plastics. These products will then have to go somewhere. And that leads to a whole other set of problems than whether the plants turn a profit.

Only about 5 percent of the world’s plastics actually get recycled, the CarbonTracker report finds. Thirty-six percent of plastic products are thrown away after a single use, and 40 percent end up in the environment. China—where the United States had sent much of its plastic waste, historically—banned plastic waste imports in 2018, sending shockwaves through the recycling industry; state-owned firms there, it’s worth noting, are themselves investing heavily in petrochemicals production for export. Changes to the 1989 Basel Convention last May now mean that in 2021 the U.S.—because it is not a party to the treaty—will be barred from trading plastics waste with countries that are not OECD members, 37 of the world’s wealthiest economies. Other countries seeking to export most types of plastic will need to seek the prior and informed consent of the governments they’re exporting it to. In other words, an uncommonly strong and timely international agreement may have cut the U.S. off from treating the global south as a dumping ground for its plastic waste.

Unsurprisingly, U.S. trade representatives and the country’s biggest industries have hotly opposed these changes and are already looking for workarounds. Documents revealed by Unearthed have shown that U.S. trade representatives have had a cozy relationship with the American Chemistry Council—a lobby group including the country’s biggest oil and gas companies—to hammer out a bilateral agreement with Kenya that would allow the U.S. to ship more so-called end-of-life plastics there; plastics are already America’s biggest export to Kenya. As The New York Times reported, public outcry over this influx has led to the government implementing some of the strictest anti-plastic policies in the world. Civil society groups warn the country is already inundated with shipped-in waste that’s leaching harmful chemicals into the air, water, and soil. Like much of the rest of the oil and gas industry’s activities, its foray into plastics is premised on being able to pass tremendous social, environmental, and financial costs onto mostly nonwhite people it can keep out of sight and out of mind. Uncharacteristically, global governance agreements could finally help close on-ramps to places that have historically been treated as sacrifice zones. Corporations and their allies in government, though, are waging a dirty fight to keep them open.

Kathy Hipple, an analyst at the Institute for Energy Economics and Financial Analysis, says petrochemicals are just another sign of the fossil fuel industry’s mounting distress. “The whole fundamental financials of the oil and gas industry are very shaky right now. The industry is extremely vulnerable. The market capitalization of some of these companies is less than half of what it was a few years ago,” she said, pointing to the fact that—with ExxonMobil now delisted from the S&P500—energy now accounts for just 2.34 percent of that index. “Oil companies are struggling to figure out their next move, and my view is that legacy companies rarely pivot sufficiently in time.” Ørsted, the Danish state-owned oil and gas company, is one of very few examples of companies that have successfully diversified into renewables. “But it’s also controlled by the Danish government, and the Danish government made a bold decision,” Hipple said.

From fracking to ethane cracking, oil and gas companies have made their fair share of bad investments over the last few years, flooding markets with fossil fuels it doesn’t need and plastics it may not want—never mind the cost of all that to the planet. Given their increasingly dangerous track record, it may be worth asking whether today’s oil and gas CEOs are the best people to let call all the shots as their companies lurch toward financial and planetary ruin.