The article in the url below is one of the best arguments I have heard as to how we will, realistically, transition away from fossil fuels. Since no one appears willing to impose a meaningful carbon tax that would encourage such a move, we will need to rely on market-based arguments to understand whether and how quickly such a shift will take place. The article in the url below hints at what that argument might look like.
First, it makes the case as to why demand for oil will inevitably drop:
"As people switch to electric cars, or at least buy more fuel-efficient versions of traditional vehicles, energy companies will have too much oil on their hands. Transport currently accounts for over half of global oil demand. Ciarán Healy, an oil market analyst at the International Energy Agency, points out that even without a further uptick in EV sales, efficiency improvements in internal combustion engine cars mean the same amount of driving will be done with less gas in the future. The IEA thinks the world is on track to have eight million barrels a day of excess oil capacity by 2030."
Second, it outlines the oil industry's best response to prop-up oil consumption – and it centers on plastics:
"London-listed BP thinks growth in petrochemicals will offset fuel declines for another decade. Crude oil and natural gas are turned into petrochemical feedstocks such as naphtha or natural gas liquids in a gas-processing plant or at an oil refinery. They are then 'cracked' into the building blocks of common plastics. … Today, 15.4% of global oil demand is driven by petrochemicals, according to data from Wood Mackenzie. The share is expected to rise to 19.1% by 2035 as emerging markets become wealthier and swelling middle classes spend more on synthetic clothing and do their grocery shopping at big supermarket chains, where food is more likely to be wrapped in plastic to prolong its shelf life. Advanced economies like the U.S. use up to 20 times more plastic than developing nations on a per capita basis, according to the IEA. Big Oil's bet is that shoppers in emerging markets will close at least part of that gap."
Third, it questions whether this will be the solution the oil companies are hoping for:
"Energy companies are pouring billions of dollars into petrochemical facilities, notably in China where ethylene capacity has almost doubled since 2019. Capacity is also rising in the U.S. and Middle East. Saudi Arabia wants to invest $600 billion into petrochemicals by the end of the decade to secure nonfuel uses of its crude oil. But the global petrochemical industry is already saturated and capacity is expected to outstrip demand until at least 2030. This points to weak profit margins and less-than-ideal utilization rates at petrochemical facilities."
Equally, it suggests why it is not a good response, strategically (from the oil companies' perspective):
"Pumping money into petrochemicals as governments are trying to solve the problem of plastic waste feels risky. [In December], countries that rely on oil exports for a large share of government revenue, including Saudi Arabia and Russia, torpedoed a global treaty that proposed curbs on plastic production. But tighter regulations are in the works anyway. More than 100 countries have introduced restrictions on plastic, including a ban on single-use plastic in the European Union."
The conclusion:
"The oil industry is resigned to slowly losing its grip on road transport. Turning to an oversupplied and wasteful petrochemicals sector for shelter is a risky strategy."
Take care
David
David Chandler
© Sage Publications, 2023
Big Oil Frets Over Demand for Plastics
By Carol Ryan
December 26, 2024
The Wall Street Journal
Late Edition – Final
B12
