Hadrid listeners. We are getting close to being able to release this next season, I swear. Today I want to talk to you about a new report that's been released from Carbon Tracker. The title is quite clever, The future
is not in plastics, well graduate reference there. The report is looking at how the oil and gas industry has for quite a while now been pointing to petrochemicals and specifically plastics as its way out when demand for oil and gas related to transportation and various other sectors declines. They've been hanging a lot of their hopes on petrochemicals and plastics, and what this new report tells us is
that the demand is just not there. The oil industry is predicting that plastic use will just continue to grow at four percent a year for several years, and they are basing a ton of investments on that. They're also getting a ton of investment dollars based on those projections. But what Carbon Tracker found is that in fact, demand will be decreasing four percent. That's quite a gap. On top of being a bad investment financially. Of course, plastic is quite bad for the planet, and not just on
the waste side. CO two is emitted in the production of plastic. Plastic is often burned, emitting more emissions. For the most part. Right now, plastic is being made with the emissions of fracking and being sold as sort of some closed loop way to deal with the emissions from that process. So again, it's one of these things that doesn't make sense from an environmental perspective, that doesn't make sense from a climate perspective, doesn't make sense from an
environmental perspective, and that no one really wants. The oil and gas industry has for a very long time used the we're just fulfilling a demand defense for oil, gas, coal, plastic, you name it. They very much use that argument on plastic,
but the data just doesn't back it up. Here to explain all of that is this report's author, Kingsmill Bond that conversation coming up in just a moment after this quick message from today's sponsor, what initially brought you to wanting to look into this issue and you know, spend enough time on it to put out a report.
So Carbon Track is focused for many years has been on the implications of the energy transition for financial markets, and one of the primary implications in many sectors has been stranded assets, which I believe is a term coined or certainly popularized by Carbon Tracker. So we wanted to look at plastics because it seems to be the epitome of a sector where there's an enormous disconnect between what the the sector is planning and what is more likely.
And in that disconnect you see a very large amount of stranded assets.
I assume that you went into this knowing a certain amount already. Was what were sort of the surprising discoveries as you dug into it a little more deeply, Well, a very good question.
The most surprising initial discovery was that everyone had different numbers and how hard it was to get all of the numbers to reconcile. So, of course, you know Common Tracker, we're very much focused on data and numbers and analysis and getting it completely accurate, and and we just found
it surprisingly difficult. I mean, fortunately, an extremely clear story manifested itself, which meant that the discontinuity is between certain different databases didn't really matter that much, but it was. It's quite hard because you're dealing with lots of different industries.
So you've got the plastics industry, you've got the petro chemical industry or the oil industry, you've got the recycling industry, and interestingly enough, Feman even across countries, in between countries that there's not complete agreement on on what the on what the what the data is. That was for me the biggest surprise.
It seems to me just in reading you know, oil companies annual reports over the last few years, that plastic has really been the thing that they claim is going to save them when demand for transport fuels drops. Does that seem to be you know, still the way that a lot of them are at least talking about this or planning in their in their financial plans.
Yeah, you put it very well. It's it's quite interesting because it's not as if plastics was always like something that you did on the with your all on the side. Once you once you use the primary use of oil in transportation and other areas, so it's quite surprising that it's it's shot up the agenda and pretty much as you say, what's happened over the last few years is that all of the other growth drivers of oil have
kind of fallen by the wayside. So cars used to be one of the four big growth vectors and and and and as cars gone more efficient and electric vehicles come into the mix, people and now said, well, you know, even the IA is now saying, actually, we've probably reached pete demand for oil from cars, and then the same
things starting to happen with trucks. And obviously, you know, in recent months, the COVID crisis has taken the steam out of the you know, the third big pillar, which was airlines and air travel and and like petrochemicals has become a kind of mantra for the oil industry that thank goodness for petro chemicals because you know, that's where
all the growth lies. And it's quite interesting if you if you take the data now from BP and the i A, probably the two leading forecasters of the entire system, then from our calculations, about half the growth of oil demand in the next twenty years in the i A numbers is actually from plastics. And suppressingly enough, it's basically all of the growth in oil demand is coming from plastics in the in our adaptation of the BP numbers.
So it has become really significant because everything else has fallen fallen away.
Right.
To be clear, that's not a commentary on BP itself. I mean, that's mainly the data forecast that they're talking about. And interestingly, as you know, BP itself is putting out of the petrochemical sector, possibly because they've looked at the numbers the same way we've done.
Can you talk a little bit about the link between the natural gas boom and the plastic boom.
With the fracking of gas, you've got a lot of energy, E get a lot of ethane and propane, and they're considerably cheaper, or they were considerably cheaper as a feedstock than oil. And you know, all these companies had the bright idea, well, let's turn this ethane into plastic and then we can undercut our competitors and we can we can make very high superprofits. That's basically was the idea.
And therefore that's where you've had this massive build up of the petrochemical sector in the US based on apparently cheap ethane. What they didn't factor on into the equation was the fact that actually the price of oil has now fallen so far that the price differential is not nearly so big as they've thought. And then, of course, much more importantly, because there's so much overbuild, the price
that they thought they were going to get. They're not going to get because there's so much overcapacity that ethylene prices have collapsed. So it's it's just been a very poor strategy.
Yeah.
Yeah, I have seen some some data around the COVID crisis actually helping to you know, booy some of the plastic demand is that accounted for in this report.
It is, in fact, we tend to see COVID, as as in so many other areas, as as a factor which speeds up change. So probably the best data on the expected impact on plastic demand this year comes from Wood McKenzie and they to they add it all up. What's the impact on plastic demand of increasing demand for medical plastic for ppeus and gloves and stuff. And then what's the impact of lower demand because of the economic shocks.
So we're buying less cars and we come go to the shops that we're buying less less clothes, and they add it all up, and actually, the the because you use a thousand times or more plastic in a car to use in a mask, the actual impact is to have a four percent decline they estimate in plastics demand this year. And that kind of if you haven't to state the obvious. If you have four percent decline in demand and a four percent increase in capacity, increased capacity,
you know, things looking quite quite ugly. But actually in this report, we wanted to focus also on some of the longer term impediments to the demand growth.
Right, could you talk a little bit about those longer term impediments and what you're seeing in you know, beyond COVID. Yeah, I think you know.
There were three impediments we wanted to put on which we focus. I mean, the first is just thinking about society. People always sneer at me as a finance guy when I talk about society, but it's you can't completely ignore the wishes and aspirations of the world's populations because you have these two really unsurmounted problems at the plastics industry is not being able to address. The first is that
they're a very large carbon footprint. It slightly depends how you're calculated, but the points of me years, they have a large carbon footprint that's planning to double over the next twenty years when the rest of the world is trying to get to zero, So that doesn't really compute.
And at the same time, you've got this massive amount of plastic ending up in the ocean, and in the Breaking Breaking the Plastic Wave reports, systemic estimates that at eleven million times a year a plastic going into the ocean, and they say, look, by twenty forty, that's going to be as much plastic in the ocean as fish. And the point simply is that therefore there's a lot of pressure, from a lot of societal pressure to do something. So
so far, so good, and that's very much appreciated. I think the two additional factors that we really drew attention to in this report. The first is is technology, and in a similar way to what you've seen elsewhere in the energy sector, new technologies are coming along which make it possible of a plastics functionality but without the same
amount of plastic. And that's what this report Breaking the Plastic Waves done, is it's analyzed that it's it's looked at the three classic areas of reduced and substitute and recycle, it's costed them in in tremendous detail, and it's figured out that you can have the same plastics functionality but at half the amount of plastics and actually, interestingly enough, at zero point seven million more jobs. So there's some interesting new technologies and new ideas materializing to meet the
aspirations of society. And then finally you have politicians are actually starting in certain areas to put these to put these ideas into practice. And you know, we highlighted in this report what's going on in Europe and China above all, but you could talk also about some of the subs
going on India and in Africa. But if I highlight what's happening in Europe specifically, the the the the European Commission now is talking about having a at tax on plastic waste, a non recycle plastic waste of of eight hundred euros a time, so basically one thousand dollars a ton, which is quite close incidentally to the externality costs that we calculate. And they're also saying that you've got to have all plastic packaging is going to have to be
recyclable by twenty thirty. That don't forget, it's a third of all plastics, just over a third of all plastics is in plastic packaging. And then they're forcing companies to use more recycle material in their products.
So the point.
Simply is that in response to the demands of society the opportunities made possible by technology, you're now having politicians
actually driving change. And the suggestion we make in this report is that some of the solutions which are being found in Europe and are likely to be found in China are going to be rolled out across the rest of the demand vectors in the world, across the rest of the merging markets, and that itself, all of this really starts to question the industry's assumption of a massive, continued, eternal growth in plastic demand.
In the US, there are several fairly large, you know, patrick chemical facilities being built right now that aren't even online yet and already seem like they're destined to lose money. Are you seeing any kind of a slowdown in like project financing on these kinds of you know, the at then cracker facilities, the sort of big petrochemical plants.
Well, of course the ones which have been finance are still going ahead, but I'm absolutely convinced that behind the scenes people are now already significantly trying to curtail the expansion, and not sadly because of anything that we've written, or because they've suddenly got religion. No, it's because of the price. The price of intermediate chemicals like has collapsed, and as this is obvious that that you're expanding into US into
an oversupplied market. So so I think I think we will see many more cancelations over the course of the next couple of years. And I think we'll also see some big be write downs as people who've sunk a couple of billion dollars into building a big pet camp plant and on the anticipation of selling it selling the material into the emerging markets, as they begin to realize that that market's not there.
Is there one part of this report that you most hope people kind of pick up on and pay attention to.
I think the the one part of the report that we wanted to be was our original focus, and it's still really significant, is to think not just about the plastics industry, but to think about the implication of low growth in the plastics industry for the oil industry. And there's a lot of talk at the moment about peak oil and
have we hit peak oil demand? And I don't particularly want to focus on that, but this debate is really significant because if between half and all of expected demand growth from oil is actually from plastics, and if that growth in and of itself can now be questioned, then it just becomes considerably easier to question whether or not oil growth itself, oil demand growth itself is going to regain its twenty nineteen levels. So that's, I guess, the other angle we wanted to look at in this report.
The other thing, slightly original thing that we did is we figured out the size of the plastic externalities, and just the points of me being that this is not an industry which, as how do I put it mildly, it's not an industry which has been particularly receptive to paying for the negative consequences of what it does right. And you know, the cost pert ton is about thousand dollars a time, which which actually sounds like a lot, but on a per person basis not very much. Actually
it's about it's forty six dollars per person globally. So the point to me is that you have an industry which is which is polluting a lot and creating a lot of waste, and people don't like it, and actually, therefore I think is extremely vulnerable to any attempts to change it, and that is likely to play out over the next few years.
It's a lot easier to talk about the negatives of plastic. It's harder for them to make the case that they do with oil, that it's just a totally necessary part of life or a central piece of the economy. You know, I don't know. It seems to me like it should be that much much more vulnerable to criticism.
Yeah.
No, I think the other point will as you know very well, the industry always says, look, you know, you desperately need plastic for ppe equipment, and you need plastic for you know, iPhone covers, and you know, and and and and they do the commission these wonderful studies saying that plastic is better than glass because it's lighter weight and all the rest of it. And and the answer to all of this stuff is just to go, okay, guys,
that's great. I mean, we know your products great, thank you very much, but just you know, pay for picking the picking the stuff up after people have used it, and pay for all of the health costs and the and and the and the ocean costs. You know, if
it's so great, then just pay for it. It's not not reasonable, right, And I think that's that's often lost in the debate about you know how great plastic is is that there are it is great, but there are costs which are borne by other people, and you need to pay for.
Them, right right, Yeah, yeah, thank you so much.
Very much.
Very enjoyable, very enjoyable conversation.
Yes, thank you, I appreciate it. All right, that's it for this time. Keep your eyes on the feed for our next season coming soon. I'll also be dropping some special preview episodes for some of the other climate shows coming up on the Critical Frequency Network, and we'll be back here soon. Thanks for listening, and we'll see you next time.