Plastics and other petrochemical goods are set to overtake the transport sector as the largest driver of global oil demand. Oil and chemical companies have invested a whopping $180 billion in new and projected plastics facilities, largely due to the fracking boom. But calls by governments and a variety of stakeholders to reduce single use plastics raise questions about whether projected demand for plastic products may slump, resulting in stranded petrochemical assets. Furthermore, extreme weather is creating new risks from flooding that exacerbate plastics pollution risks from petrochemical plants.
Demand in question: The European Union recently agreed to ban several types of single use plastics, including straws, plates and cutlery. Seventy large brand owners—including Coca-Cola, Colgate-Palmolive, PepsiCo, and Unilever—signed a Global Commitment convened by the Ellen MacArthur Foundation’s New Plastics Economy project to make all plastic packaging recyclable; to eliminate “problematic or unnecessary” plastic packaging; to increase recycled content; and to move away from single use plastic to reuse models where relevant, all by 2025. More than 50 countries have banned thin film plastic bags. All of these actions could decrease demand for plastic.
As You Sow has successfully engaged the consumer goods sector to replace harmful plastics with more sustainable packaging and to increase recycling, with several recent key wins. McDonald’s agreed to stop using polystyrene foam and to recycle all its packaging. Starbucks agreed to phase out plastic straws. Colgate-Palmolive, KraftHeinz, Mondelez International, Procter & Gamble and Unilever have committed to make their packaging recyclable. As You Sow is now leading the Plastics Solutions Investor Alliance, a group of 40 investors with $1 trillion in assets to engage other consumer goods companies to reduce plastic use and ramp up recycling.
If significant uses of plastic are phased out as a result of shareholder engagement, government bans, and voluntary actions like the Global Commitment, and if recycling can be dramatically increased though improved collection and processing, demand for virgin plastic resins would shrink. This would affect oil and gas company financial projections.
Extreme weather safety risks: As energy and chemical giants like Exxon Mobil, DowDupont, Shell, and Chevron propose new petrochemical infrastructure, investors must ask not only if the buildup is justified, but also if facilities are safe. Ethane is a byproduct of the fossil fuel fracking process. Like methane, it is a greenhouse gas that contributes to global warming, creates ozone and increases asthma incidence. Ethane extracted from fracked gas can be converted in “cracking plants” to ethylene, a common building block of plastics. Communities near crackers are increasingly exposed to toxic air quality and health impacts. Cracking plants are popping up across the country, particularly in the Gulf Coast and Mid-Atlantic/Northeast.
In addition to high emissions resulting from routine cracking operations, companies tend to locate facilities in high-risk flood zones, such as those inundated by Hurricane Harvey. This buildup of operations in areas prone to flooding, especially as climate-related flooding increases in intensity and frequency, is troubling and is raised in As You Sow resolutions this year at Exxon Mobil and DowDupont about petrochemical releases. Further, reports of spills of pre-production plastic pellets prompted As You Sow to file proposals with Chevron, DowDuPont, Exxon Mobil, and Phillips 66, asking for transparency on pellets spills and measures that might avoid future spills.
Worldwide, progress is being made to shift away from fossil fuels as energy markets transition to clean energy sources. While producing plastic is being viewed as an alternative profit stream when fossil fuel demand dwindles, energy experts suggest this could be a risky bet. Resolutions this year continue to press companies to prepare for falling fossil fuel demand in a way that creates long-term, sustainable value for all stakeholders.