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Plastic recycling threatens oil demand growth

Technology developments could take a chunk out of demand forecasts, but the impact may be just to moderate growth rather than shrink overall demand

Plastic recycling has the potential to displace some future assumed oil demand growth. But, unless the most optimistic technology assumptions come to pass, overall thirst for oil from the plastics industry may continue to grow, with recycling simply moderating the pace.

Currently, 85pc of the world’s plastic is incinerated, dumped into landfills or ends up in the oceans. Just 18 developing countries contribute 80pc of this global mismanaged plastic waste. China is by far the largest contributor on 28pc, followed by Indonesia on 10pc.

On the demand side, c.9mn bl/d of oil is used to make plastics at naphtha crackers in China, Europe and emerging Asian economies, according to research earlier this year from Rob West at energy technology consultancy Thunder Said Energy (TSE). The current trajectory is for that to reach 23mn bl/d by 2060.

But if 50pc of the world’s plastic can be pyrolysed, then demand would stagnate at current levels. It could even be halved under a more aggressive scenario, West argues. Rather than paying to purchase an input feedstock, recyclers will likely be paid to take it. That prospect underpins prospective internal rates of return of more than 30pc on plastic recycling projects, he says.

Converting waste plastics into cracker feedstocks to displace naphtha or LNG demand, most likely through pyrolysis, may be economically viable, agrees Thomas Hundertmark, leader of plastic re-use service at consultancy McKinsey in Houston. China, has the greatest potential profitability in 2030, in McKinsey’s view, followed by emerging Asian economies.

20mn bl/d — oil demand from petchems in 2050

And Chinese plastic recycling has been making progress. Columbia University research into the Chinese use of pyrolysis examines four different methods—the Kingtiger, Henan Doing, Huayin and Niutech processes. The oil yield rate per ton of plastic feedstock is roughly about 45pc for all four processes, but Henan Doing has the highest capacity and lowest yield of potential carcinogenic carbon black.

Henan Doing Machinery Equipment, located in Zhengzhou province, has installed recycling equipment in more than 40 countries worldwide. The firm says that it also recycles the non-condensable combustible gas generated through pyrolysis, so reducing costs.

Lighter vehicles

TSE researched 20 companies that are investigating plastic pyrolysis and identified three small businesses with good commercial prospects—Recycling Technologies in the UK, and Renewlogy and Golden Renewables in the US. Larger companies such as German chemicals heavyweight BASF, BP, Total and Exxon are waiting in the wings.

But West also notes the difficulty of producing a uniform, high quality product from a highly variable feed such as waste, and the difficulty of effectively using all the pyrolysis product. And, even if the plastic recycling industry takes off, the impact on oil will be limited by the fact that demand for plastic is not going to stand still in future decades. 

85pc — non-recycles plastics

Recycled plastics do not replace the need for naphtha and ethane/propane feedstock like-for-like, says Artyom Chen, senior analyst at consultancy Rystad Energy in Oslo. Recycled plastics, for example in construction and clothing, do not replace plastics and feedstock demand that otherwise would have occurred, but rather displace other materials such as wood, cloth and steel.

Moreover, ongoing efforts in passenger vehicles and aviation to reduce weight and increase fuel efficiency imply support for plastics demand in those industries at the expense of steel, Chen says. Reducing the weight of vehicles is a reliable way to reduce carbon emissions. But bioplastics and recycled materials can have only limited penetration in transportation for now due to their fast degradability, Chen argues.

Feedstock demand will grow at a rate of 4-5pc pa until late 2020s, then flatten out during late 2030s and will start declining marginally by 2-3pc pa in 2040s, according to Chen’s projections. In that scenario, total oil demand from the petchems sector will be close to 20mn bl/d in 2050, up from the current 15mn bl/d, he says.  So, while plastic recycling may turn into a profitable industry, it seems unlikely to lead to a significant diminution of oil demand.

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