Plastic recycling to hit oil producers
The rise of plastics recycling plants may stunt demand for oil
Reaction against the environmentally damaging effect of plastic packaging is fuelling the development of plants in Europe and elsewhere that can recycle it as liquid feedstock or fuel in a trend that is likely to reduce refineries' demand for oil. Many say the chemicals industry will have to undertake a fundamental shift towards recycling if it wants to prevent consumers rejecting plastics—and especially single-use packaging—in a widespread swing against harmful materials.
Coincidentally, public consciousness of the dangers that packaging represents for marine life rose following the release of David Attenborough's Blue Planet II documentary. But further pressure is mounting from major brands that use packaging and are evaluating shifts to alternatives other than plastic.
One of the consequences may be a reduction in demand for oil-based petrochemical feedstock. In recent years it has been a mantra within the oil and chemicals industry and energy watchdogs such as the International Energy Agency (IEA) that demand for oil will be sustained by the growing need for petrochemicals. In its 2018 The Future of Petrochemicals, the IEA estimates that the petrochemicals sector uses up to 13mn bl/d of oil and that demand will grow by an additional 3mn bl/d to 2030. BP's Energy Outlook 2018 comes to similar conclusions.
But recent concern over the proliferation of plastics in the environment is leading large and small companies to study the possibility of recycling plastics as liquid feedstock or fuel. The key impetus for these technologies has come from the EU's 2018 Strategy for Plastics in a Circular Economy, which aims to ensure that half of all plastics packaging used in the EU is either reusable or cost-effectively recycled by 2025. And by 2030 the target is that all plastics packaging meets the same criteria. Pressure is also being applied in the US. In May 2018, the American Chemistry Council's plastics division announced that its members had agreed that 100pc of plastics packaging in America is recyclable or recoverable by 2030.
Most of the recycling technologies are either still in the pilot plant stage or just leaving it. However the results are encouraging. At opposite ends of the size scale, OMV AG, Austria's national oil company, and Renewlogy, a privately-held company based in Utah, have concentrated on recycling used plastics into liquid feedstocks. Other companies are engaged in recycling plastics back to their chemicals components.
"The transition will be much faster than people expect. We always underestimate how quickly these things develop"—Hodges, eChem
OMV's technology uses thermal cracking at temperatures of about 400C in the presence of a hot liquid solvent to return waste plastics to crude oil. The company says the resulting synthetic product is a sulphur-free, very light crude that can be processed with other oil in a refinery. OMV claims its pilot plant, which is integrated within its 190,000 bl/d Schwechat refinery, can produce 100 litres of synthetic crude from 100 kilograms of plastic feedstock. The feedstock can include common packaging materials made of polyethylene, polypropylene and polystyrene.
Renewlogy's technology is also based on thermal cracking of inputs, but it is calibrated to produce naphtha, a chemical and gasoline feedstock, or a middle distillate suitable for use as diesel, if blended in a 50–50 ratio with typical refinery diesel. Renewlogy founder and chief executive Priyanka Bakaya points out that "mixed plastics lend themselves well to recycling". Renewlogy is currently supplying product for refiners in Utah and in 2018 delivered a commercial unit to Sustane Technologies in Nova Scotia.
OMV doesn't release the economics of its project, saying it is still in the pilot plant stage, but Bakaya says Renewlogy can produce its diesel-suitable product at an operating cost of $30 a barrel, compared with a sales value of $100 a barrel. Neither have publicly released capital costs. Renewlogy says it doesn't require payment from waste processors-so-called "tipping fees"-in order for the technology to be economic.
Other companies are also exploring similar recycling technologies. In July, OMV affiliate Borealis AG said it had agreed to acquire Ecoplast Kunststoffrecycling, an Austrian plastics recycler which produces low and high-density polyethylene from waste. Another firm, Finland's Neste Corporation, a leader in biofuels, says it expects to achieve commercial-scale production from a plastics-to-liquid-feedstock technology by 2019. Neste has formed a joint venture with UK's ReNew and Austria's Licella to explore the use of mixed-waste plastic as a refinery and chemicals raw material. Neste says its goal is to process over a million tonnes a year of waste plastic by 2030.
Chemicals producers' enthusiasm for recycling also extends to Asia where governments, including China and Indonesia, are implementing recycling programmes to avoid problems such as those that occurred in April when Indonesia's army was deployed to clean up plastic clogging the Citarum river.
The rapid progress being made isn't surprising, given the deadlines the EU and American Chemistry Council have set. "If you need to be prepared by 2025, you've got to tell people it'll work by 2022–23", says Paul Hodges, chairman of International eChem, a chemicals industry consultancy. He adds that the stark alternative could be the plastics packaging sector will fade away as alternative packaging such as paper gains ground at its expense.
In either case he expects crude oil demand to be significantly affected. Hodges thinks that the recycling of polyethylene and polypropylene could lead to a net medium-term loss of a million bl/d of oil demand from today's level, cancelling out all of the growth that many oil companies have been expecting. "If you're an oil company, you're whistling in the wind if you think you'll be selling all that oil into plastics", he says.
100 litres of crude from 100kg of plastic—the output of OMV's recycling plant in Austria
Hodges also notes that oil is facing competition from natural gas liquids, particularly in the US where high ethane supplies from wet gas, particularly in the Northeastern Marcellus/Utica shale region, are luring new ethane-based projects such as those by units of Shell and Global Chemical. Many new chemicals developments along the US Gulf are also ethane-based, while in Europe Ineos is importing US ethane for its operations.
Not everyone thinks plastics recycling is the only wave of the future. Many believe product switching also has a role to play. "I don't think it's going to be one or the other. I think it's going to be both", predicts a European oil analyst. An American industry executive points out that waste-to-energy projects have a long history of difficulty in maintaining long-term raw materials supply, particularly in rural areas.
Yet OMV and Renewlogy appear to have cleared this hurdle. OMV's Schwechat refinery is near Vienna. Renewlogy's Bakaya notes that her commercial-scale technology requires that it is based in the vicinity of a city with a population of around a million in order to obtain enough waste for processing. Renewlogy's strategy for larger plants is to partner with waste-processing companies. Smaller Renewlogy plants are being designed for developing countries—these are usually sponsored.
Meantime International eChem's Hodges believes that eventually a distributed waste recycling industry may arise. "The transition will be much faster than people expect. We always underestimate how quickly these things develop", he says.
Meanwhile the challenge from plastics recycling will only grow. When added to the environmental and technological pressures on the automotive industries where electric vehicle output is growing, and to developments in the shipping industry where regulations on emissions are prompting the development of LNG-fuelled ships, current forecasts of oil demand growth may prove well wide of the mark.
Bill Barnes is Director of Pisgah Partners, a specialist in the development of energy projects