Why oil and gas companies could lose and gain the most

Waste and resources are hot topics. Whether it’s the fierce rhetoric of 16-year old student climate campaigner Greta Thunberg or environmental protesters bringing cities to a standstill across the world, there’s no doubt the circular economy is hitting the headlines.

The energy industry, and more particularly, the hydrocarbon industry is under scrutiny. By 2040, it’s possible that up to 43 percent of anticipated global conventional polymer production could disappear due to circular economy initiatives. What’s more, new waste from advanced materials is only just getting started.

​Plastics in wind turbines, solar panels, lightweight composite materials in cars and airplanes are growing—somehow, the European Union must soon manage up to 300 kmtpy of used wind turbine blades.[1]

I believe three elements are hard for the industry to ignore—rising waste consciousness, an industrial recalibration and energy transition. But just as oil and gas companies reconcile with the fact that they could lose up to half of demand growth, there’s a window of opportunity.

Let’s take a closer look at those influential issues and how they set the scene for oil and gas companies to innovate and thrive.

• Rising waste consciousness: Justin Hofman’s photograph of a seahorse clinging to a bright pink plastic cotton swab is far from being the only acknowledgment of rising waste. In an Accenture survey of 6,000 consumers in 11 countries, we found that 56 percent of consumers believe sending packaging to landfill is the most harmful option to the environment.[2] Perhaps a greater challenge is that only 42 percent would opt for plastic packaging over non-plastic packaging, even if the plastic packaging was proven or certified as less harmful for the environment.

And waste trade has become an international issue, with China’s 2018 waste import ban and more plastics diverted to domestic landfills as a result. Durable plastics waste is another storm on the horizon. As cars raise their levels of plastics, consumers and government will demand materials recovery, rather than landfill.

• Industrial recalibration: Hyper-personalization of products, speed, material minimization, localization of supply chains and material re-use are rapidly recalibrating the industry. New technologies like 3D printing and generative design[3], where you can optimize the use of material, also influence this shift.

Our analysis looked at new investment announcements in the United States going back to 2012 (Figure 1). We see a rapid rise in the number of firms talking about industrial recalibration. Industrial recalibration affects trade deglobalization, investment globalization (where investments serve local markets), supply chain costs and energy usage reduction—and offers a chance to close the waste loop.

• ​Energy transition: Petrochemicals, which only account for about 10 percent of oil and gas consumption, are growing at 1.3 times the world’s gross domestic product growth rate and 1.8 times faster than all primary energy—the world market needs five to six new world scale ethylene plants per year to keep up with demand. Unsurprisingly, oil and gas companies have been making significant investments in chemicals to seize this opportunity. But chemicals growth may slow significantly if recycling and bans are fully realized.

Our research calculates that there could be an equivalent lost conventional capacity of ~795 world scale polymer plants, by processing all recycling mechanically. Chemical recycling, which converts waste plastics into feedstocks, would likely take a larger share and still utilize and feed conventional polymer technology. Both routes imply that new hydrocarbons demand would be significantly reduced.

What does this mean for oil and gas?

As we can see, these three elements could drive big changes. Global petrochemical demand growth could reduce from just below 4 percent per year to just below 2 percent per year. It is inevitable this will also impact the bottom lines of oil and gas companies. According to our calculations, changes could shave projected oil and gas demand growth by 0.5 percent per year to 2040. 

Yet, petrochemicals still represent the highest growth prospect for oil and gas—if the industry can shift and scale.​

In my next blog I’ll take a closer look at tapping into the opportunities and how technologies can help to meet the waste challenge. If any of this content resonates with you and your company, do get in touch. 

[1] Basic Materials Roundup: Market Talk, The latest Market Talks covering Basic Materials, WSJ, May 31, 2019.
[2] Accenture Chemicals Global Consumer Sustainability Survey, 2019.
[3] Generative design, especially when used with artificial intelligence (AI) allows the creation of optimal material use for a function.  Think of using honeycomb structures, but more specifically configured to an objects purpose