- Oil giants are investing in plastics and chemicals as fossil-fuel demand weakens.
- However, the petrochemical industry is under pressure as plastic recycling increases and governments ban plastic products such as single-use cups and straws.
- Oil groups could face challenges in both markets as a result.
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The world’s largest oil companies are planning to offset slowing demand for fossil fuels by tapping into the plastics and chemicals markets. Growth in plastic recycling and government bans on plastic products threaten to temper petrochemical sales and scuttle that strategy.
Gasoline sales have suffered from accelerating adoption of electric vehicles and rising fuel efficiency in conventional cars. Meanwhile, the petrochemical industry is set to account for a third of the growth in world oil demand to 2030 and nearly half the growth to 2050, according to the International Energy Agency. As a result, oil giants including Saudi Aramco, BP, Exxon Mobil, and Royal Dutch Shell have snapped up plastic and chemicals assets, according to Bloomberg.
However, the boom in petrochemical sales might not materialise if there’s a fiercer crackdown on plastic waste. Greater recycling of plastics, along with more government bans on plastic products such as single-use cups and straws, could reduce growth in petrochemical demand by a third to 1.5% a year, consulting firm Accenture said, according to Bloomberg.
If that happens, oil companies might find themselves in trouble on two fronts. They could face flagging fuel sales as electric and fuel-efficient vehicles take to the streets and governments crack down on pollution and fossil-fuel emissions, as well as tepid demand for plastic and chemicals as petrochemical groups feel pressure from consumers and authorities to clean up their act.
Snapping up assets
Saudi Aramco, the world’s largest oil company, struck a $US69 billion deal to acquire Saudi Arabian chemical producer Sabic in March, and has invested billions to boost its chemical production around the world, according to Reuters. It has also partnered with subsidiaries of Chevron and McDermott to create a refinery where 70% to 80% of the output is chemicals, while already building a domestic facility where that proportion is 40%, according to Bloomberg. Saudi Aramco has also added the former CEOs of Dow Chemical and Chevron Phillips Chemical to its board.
Similarly, Exxon Mobil intends to expand its chemical-making capacity by 40% in Asia and North America, while China is set to invest $US100 billion in facilities that turn crude oil into chemicals over the next five years, Bloomberg said.
Extracted from Business Insider