The Ohio Valley petrochemical buildout is in big trouble. You know it when you hear things like this:
“The Zeitgeist has shifted, and this is a permanent shift.”
Those are not the words of an anti-fracking activist or an ocean conversation group. That’s the petrochemical industry talking. More precisely, it is ICIS analyst John Richardson writing about the end of the era of plastics, which he believes is upon us now. Long considered one of the leading sources of industry data and market analysis, ICIS provides arguably the most credible viewpoint on plastics anywhere. So it’s worth paying attention to the four-part series he wrote for ICIS, in which Richardson argues persuasively that public attitudes about plastic have shifted so dramatically that the world may have already reached “peak plastic.”
If Richardson is right and the world is anywhere near peak plastic, it spells big trouble for the long-planned dream of an Appalachian petrochemical buildout.
For those who care about the economic future of the Ohio River Valley, it is important to understand what is likely to change in the petrochemical and plastics industries. And it is important to see what those changes are likely to mean for regional investments in production facilities like the Shell cracker plant in Beaver County or the long-deferred PTTGC cracker proposed for Belmont County, Ohio. The Institute for Energy Economics and Financial Analysis has previously published a series of grim outlooks on these projects, pointing out that ratings agencies and investors alike are souring on their prospects. And there is even more reason to be concerned that the entire concept—fracking for petrochemical feedstock to make plastic—is fundamentally flawed.
ICIS is not alone in the belief that change in the plastics industry is likely on the horizon. The global consulting firm McKinsey outlines a similar scenario. So does Wood Mackenzie, the oil and gas analytics group. In an August 2020 report, Wood Mac provided the results of a detailed modelling forecast for consumer packaging, concluding that a steep reduction in virgin plastic production is entirely possible (though not certain) over the coming decades, a change big enough to avoid 382 million metric tons of plastic waste by 2040. As the report’s author says:
“…we might see an even more radically changed environment. Further gains in recycling through new technologies. Competition from new materials, such as bio-polymers. Changing consumer trends, with rampant e-commerce supported by increasingly durable packaging applications. All of this could lead to a world where packaging doesn’t require any net new inputs from the energy and petrochemical sectors.”
Other analysts see things much the same way. Even if we’re not quite there yet, the highwater mark for plastics may be close, according to a detailed September 2020 report by Carbon Tracker, which finds that “mounting pressure to curtail the use of plastics—now a worldwide concern—could slash virgin plastic demand growth from 4% a year to under 1%, with demand peaking in 2027.”
Reaching peak demand for plastics is potentially a big problem for the industry that is investing in anticipation of long term growth. Yet there is good reason to think that growth will never materialize. In fact, it looks more and more like building out petrochemicals and plastics production is a terrible investment strategy, full of risk many years too late to be profitable.
Much of the risk derives from public attitudes about plastic, which are driving ever-more restrictive laws to curtail its use. Global opinion about plastic is hard to track, but it is almost certainly awful for the industry. According to a PBS NewsHour/Marist poll conducted in November 2019, two-thirds of Americans are willing to pay more for everyday items instead of using plastic. And that public skepticism of plastic is making itself visible in a mounting tsunami of bans, fees, and regulations on disposable consumer plastic items. Although some of these regulations were temporarily lifted or weakened in response to covid, the pandemic was a disaster for the plastics industry. Some boosters tried to argue that a temporary uptick in consumer use of disposable plastic would be good for the industry’s fortunes, but the truth is probably just the opposite: analysts believe the covid-induced economic shocks in 2020 probably reduced plastic consumption by around 4%.
The pandemic notwithstanding, a global movement against plastics is continuing apace. According to the World Economic Forum, fully 170 nations have pledged to “significantly reduce” the use of plastic by 2030, and many have already begun rolling out ambitious plans. In the United States, hundreds of cities and at least eight states have banned at least some disposable consumer plastic products. China announced a ban in March 2020. Canada announced its intent to ban single-use plastic products in October. New Jersey announced a ban in November.
All this has not escaped the notice of the big corporations that make or package their products using plastic. What’s surprising, however, is that they are not fighting the trend—they are going right along with the shift. The Wall Street Journal reported in December that some of the biggest trade association lobbying groups like Ameripen and Consumer Brands Association will actually support policies that levy higher fees on single-use plastics—at least provided the money goes to support more aggressive recycling efforts.
That spells trouble for the Appalachian crackers because, if industrial-scale recycling scales up, it could seriously undercut the market for “virgin” plastic (that is, plastic made from raw materials like gas-derived ethylene). Although the recent history of plastics recycling in the US is dismal, owing in part to deceitful campaigns initiated by the oil industry, there is strong evidence from both the public and private sector that the dynamics of plastics recycling are about to change massively.
The European Union will begin to levy a tax on plastic waste starting on January 1, an endeavor that is designed in part to shift the European economy into a “circular” model in which materials are reused rather than the current linear model, in which resources are extracted and then disposed of). Meanwhile, the private sector is taking notice. LyondellBasell, one of the largest plastics companies in the world, recently announced plans to begin producing two million metric tons of recycled and renewable polymers each year.
Although effective large-scale plastics recycling still faces meaningful obstacles, including insufficient infrastructure, most analysts believe that the barriers can be surmounted. You can see those plans in the works now in West Virginia where Star Plastics is betting on expanding markets for recycled plastics with a new product line.
While plastics recycling takes off, a raft of innovators are moving forward with plans to produce plastics in other ways, all of them more environmentally friendly than the petrochemical-based plans in Appalachia. Scientific American singles out “bioplastics,” plastics that are derived from biomass and which then biodegrade, as one of the top emerging technologies to watch. Some companies, like UBQ Materials in Israel, are figuring out how to use household garbage to create plastics at scale, while other industry initiatives are popping up from East Asia to the Great Lakes. In Pennsylvania, a proposed facility in Berks County would produce high-grade plastic pellets, just like those made in a cracker plant, but using trash for feedstock rather than hydrocarbons from fracking.
In the meantime, widespread concern about plastic pollution is only likely to increase, as the public is continually confronted with horrifying images of plastic pollution. In fact, over 550 environmental groups are jointly called for the Biden administration to take action on plastics pollution.
Not everyone supports these trends–plastic recycling and bioplastics and corporate sustainability initiatives—but there is no question that they are happening and no question that they pose problems for the would-be builders of petrochemical facilities in the Ohio Valley. Shrinking markets, a more advanced petrochemical buildout in the Gulf Coast, growing public skepticism, and bearish industry analysts are all pointing to the same outcome: Appalachia’s cracker plants face stiff financial headwinds and, as such, they are not a safe bet for economic development.