Oil and gas producers demand may be under threat with regards to the petrochemicals market, thanks to the global backlash against plastics from both consumers and regulators. That’s the view of index provider and investment analyst MSCI, which says that “amid the shift toward electric vehicles and global efforts to rein in fossil-fuel emissions, oil demand for road transport may peak in 2025”. In response, oil and gas companies are expected to pivot toward petrochemicals, mainly inputs for plastics. Materials, rather than energy, may account for more than half of oil-demand growth by 2050, MSCI says.
But, it adds, tighter global anti-plastics regulations and shifting consumer preferences could limit the upside of these investments. “When valuing O&G companies, could a rise in recycling technologies and non-fossil-based alternatives make conventional virgin plastic the next stranded asset?” MSCI asks.
Companies such as PTT, Total, Formosa and IRPC earn more than a quarter of their revenue from selling petrochemicals, 80% of which are used to make plastic materials and products. However, “a growing legal and consumer backlash against plastics pollution may threaten the economics of further petrochemical and O&G developments”.
The number of anti-plastic pollution rules has skyrocketed over the past few years, mostly targeting single-use packaging, which accounts for as much as 40% of all plastic use. Sixty countries and around 350 US municipalities had introduced restrictions on single-use plastics by the end of last year, while the European Parliament passed a directive that calls for more than 90% of drinks bottles by 2025. “If this trend continues, petroleum assets envisioned as plastic inputs could end up as stranded as those intended for combustion,” MSCI’s report says.
It’s not just oil and gas groups that could find their revenues under threat – chemicals groups such as Dow, Mexichem, Westlake Chemical, Braskem, Lotte Chemical and Mitsui Chemicals currently derive more than 80% of their revenues from plastics-related products. Many chemicals companies have responded to the increase in regulation and changing consumer sentiment by moving to solutions that reduce the amount of oil and gas they use.