Speaker 1: Hadrid listeners. We are getting close to being able to
Speaker 1: release this next season, I swear. Today I want to
Speaker 1: talk to you about a new report that's been released
Speaker 1: from Carbon Tracker. The title is quite clever, The future
Speaker 1: is not in plastics, well graduate reference there. The report
Speaker 1: is looking at how the oil and gas industry has
Speaker 1: for quite a while now been pointing to petrochemicals and
Speaker 1: specifically plastics as its way out when demand for oil
Speaker 1: and gas related to transportation and various other sectors declines.
Speaker 1: They've been hanging a lot of their hopes on petrochemicals
Speaker 1: and plastics, and what this new report tells us is
Speaker 1: that the demand is just not there. The oil industry
Speaker 1: is predicting that plastic use will just continue to grow
Speaker 1: at four percent a year for several years, and they
Speaker 1: are basing a ton of investments on that. They're also
Speaker 1: getting a ton of investment dollars based on those projections.
Speaker 1: But what Carbon Tracker found is that in fact, demand
Speaker 1: will be decreasing four percent. That's quite a gap. On
Speaker 1: top of being a bad investment financially. Of course, plastic
Speaker 1: is quite bad for the planet, and not just on
Speaker 1: the waste side. CO two is emitted in the production
Speaker 1: of plastic. Plastic is often burned, emitting more emissions. For
Speaker 1: the most part. Right now, plastic is being made with
Speaker 1: the emissions of fracking and being sold as sort of
Speaker 1: some closed loop way to deal with the emissions from
Speaker 1: that process. So again, it's one of these things that
Speaker 1: doesn't make sense from an environmental perspective, that doesn't make
Speaker 1: sense from a climate perspective, doesn't make sense from an
Speaker 1: environmental perspective, and that no one really wants. The oil
Speaker 1: and gas industry has for a very long time used
Speaker 1: the we're just fulfilling a demand defense for oil, gas, coal, plastic,
Speaker 1: you name it. They very much use that argument on plastic,
Speaker 1: but the data just doesn't back it up. Here to
Speaker 1: explain all of that is this report's author, Kingsmill Bond
Speaker 1: that conversation coming up in just a moment after this
Speaker 1: quick message from today's sponsor, what initially brought you to
Speaker 1: wanting to look into this issue and you know, spend
Speaker 1: enough time on it to put out a report.
Speaker 2: So Carbon Track is focused for many years has been
Speaker 2: on the implications of the energy transition for financial markets,
Speaker 2: and one of the primary implications in many sectors has
Speaker 2: been stranded assets, which I believe is a term coined
Speaker 2: or certainly popularized by Carbon Tracker. So we wanted to
Speaker 2: look at plastics because it seems to be the epitome
Speaker 2: of a sector where there's an enormous disconnect between what
Speaker 2: the the sector is planning and what is more likely.
Speaker 2: And in that disconnect you see a very large amount
Speaker 2: of stranded assets.
Speaker 1: I assume that you went into this knowing a certain
Speaker 1: amount already. Was what were sort of the surprising discoveries
Speaker 1: as you dug into it a little more deeply, Well,
Speaker 1: a very good question.
Speaker 2: The most surprising initial discovery was that everyone had different
Speaker 2: numbers and how hard it was to get all of
Speaker 2: the numbers to reconcile. So, of course, you know Common Tracker,
Speaker 2: we're very much focused on data and numbers and analysis
Speaker 2: and getting it completely accurate, and and we just found
Speaker 2: it surprisingly difficult. I mean, fortunately, an extremely clear story
Speaker 2: manifested itself, which meant that the discontinuity is between certain
Speaker 2: different databases didn't really matter that much, but it was.
Speaker 2: It's quite hard because you're dealing with lots of different industries.
Speaker 2: So you've got the plastics industry, you've got the petro
Speaker 2: chemical industry or the oil industry, you've got the recycling industry,
Speaker 2: and interestingly enough, Feman even across countries, in between countries
Speaker 2: that there's not complete agreement on on what the on
Speaker 2: what the what the data is. That was for me
Speaker 2: the biggest surprise.
Speaker 1: It seems to me just in reading you know, oil
Speaker 1: companies annual reports over the last few years, that plastic
Speaker 1: has really been the thing that they claim is going
Speaker 1: to save them when demand for transport fuels drops. Does
Speaker 1: that seem to be you know, still the way that
Speaker 1: a lot of them are at least talking about this
Speaker 1: or planning in their in their financial plans.
Speaker 2: Yeah, you put it very well. It's it's quite interesting
Speaker 2: because it's not as if plastics was always like something
Speaker 2: that you did on the with your all on the side.
Speaker 2: Once you once you use the primary use of oil
Speaker 2: in transportation and other areas, so it's quite surprising that
Speaker 2: it's it's shot up the agenda and pretty much as
Speaker 2: you say, what's happened over the last few years is
Speaker 2: that all of the other growth drivers of oil have
Speaker 2: kind of fallen by the wayside. So cars used to
Speaker 2: be one of the four big growth vectors and and
Speaker 2: and and as cars gone more efficient and electric vehicles
Speaker 2: come into the mix, people and now said, well, you know,
Speaker 2: even the IA is now saying, actually, we've probably reached
Speaker 2: pete demand for oil from cars, and then the same
Speaker 2: things starting to happen with trucks. And obviously, you know,
Speaker 2: in recent months, the COVID crisis has taken the steam
Speaker 2: out of the you know, the third big pillar, which
Speaker 2: was airlines and air travel and and like petrochemicals has
Speaker 2: become a kind of mantra for the oil industry that
Speaker 2: thank goodness for petro chemicals because you know, that's where
Speaker 2: all the growth lies. And it's quite interesting if you
Speaker 2: if you take the data now from BP and the
Speaker 2: i A, probably the two leading forecasters of the entire system,
Speaker 2: then from our calculations, about half the growth of oil
Speaker 2: demand in the next twenty years in the i A
Speaker 2: numbers is actually from plastics. And suppressingly enough, it's basically
Speaker 2: all of the growth in oil demand is coming from
Speaker 2: plastics in the in our adaptation of the BP numbers.
Speaker 2: So it has become really significant because everything else has
Speaker 2: fallen fallen away.
Speaker 1: Right.
Speaker 2: To be clear, that's not a commentary on BP itself.
Speaker 2: I mean, that's mainly the data forecast that they're talking about.
Speaker 2: And interestingly, as you know, BP itself is putting out
Speaker 2: of the petrochemical sector, possibly because they've looked at the
Speaker 2: numbers the same way we've done.
Speaker 1: Can you talk a little bit about the link between
Speaker 1: the natural gas boom and the plastic boom.
Speaker 2: With the fracking of gas, you've got a lot of energy,
Speaker 2: E get a lot of ethane and propane, and they're
Speaker 2: considerably cheaper, or they were considerably cheaper as a feedstock
Speaker 2: than oil. And you know, all these companies had the
Speaker 2: bright idea, well, let's turn this ethane into plastic and
Speaker 2: then we can undercut our competitors and we can we
Speaker 2: can make very high superprofits. That's basically was the idea.
Speaker 2: And therefore that's where you've had this massive build up
Speaker 2: of the petrochemical sector in the US based on apparently
Speaker 2: cheap ethane. What they didn't factor on into the equation
Speaker 2: was the fact that actually the price of oil has
Speaker 2: now fallen so far that the price differential is not
Speaker 2: nearly so big as they've thought. And then, of course,
Speaker 2: much more importantly, because there's so much overbuild, the price
Speaker 2: that they thought they were going to get. They're not
Speaker 2: going to get because there's so much overcapacity that ethylene
Speaker 2: prices have collapsed. So it's it's just been a very
Speaker 2: poor strategy.
Speaker 1: Yeah.
Speaker 3: Yeah, I have seen some some data around the COVID
Speaker 3: crisis actually helping to you know, booy some of the
Speaker 3: plastic demand is that accounted for in this report.
Speaker 2: It is, in fact, we tend to see COVID, as
Speaker 2: as in so many other areas, as as a factor
Speaker 2: which speeds up change. So probably the best data on
Speaker 2: the expected impact on plastic demand this year comes from
Speaker 2: Wood McKenzie and they to they add it all up.
Speaker 2: What's the impact on plastic demand of increasing demand for
Speaker 2: medical plastic for ppeus and gloves and stuff. And then
Speaker 2: what's the impact of lower demand because of the economic shocks.
Speaker 2: So we're buying less cars and we come go to
Speaker 2: the shops that we're buying less less clothes, and they
Speaker 2: add it all up, and actually, the the because you
Speaker 2: use a thousand times or more plastic in a car
Speaker 2: to use in a mask, the actual impact is to
Speaker 2: have a four percent decline they estimate in plastics demand
Speaker 2: this year. And that kind of if you haven't to
Speaker 2: state the obvious. If you have four percent decline in
Speaker 2: demand and a four percent increase in capacity, increased capacity,
Speaker 2: you know, things looking quite quite ugly. But actually in
Speaker 2: this report, we wanted to focus also on some of
Speaker 2: the longer term impediments to the demand growth.
Speaker 1: Right, could you talk a little bit about those longer
Speaker 1: term impediments and what you're seeing in you know, beyond COVID. Yeah,
Speaker 1: I think you know.
Speaker 2: There were three impediments we wanted to put on which
Speaker 2: we focus. I mean, the first is just thinking about society.
Speaker 2: People always sneer at me as a finance guy when
Speaker 2: I talk about society, but it's you can't completely ignore
Speaker 2: the wishes and aspirations of the world's populations because you
Speaker 2: have these two really unsurmounted problems at the plastics industry
Speaker 2: is not being able to address. The first is that
Speaker 2: they're a very large carbon footprint. It slightly depends how
Speaker 2: you're calculated, but the points of me years, they have
Speaker 2: a large carbon footprint that's planning to double over the
Speaker 2: next twenty years when the rest of the world is
Speaker 2: trying to get to zero, So that doesn't really compute.
Speaker 2: And at the same time, you've got this massive amount
Speaker 2: of plastic ending up in the ocean, and in the
Speaker 2: Breaking Breaking the Plastic Wave reports, systemic estimates that at
Speaker 2: eleven million times a year a plastic going into the ocean,
Speaker 2: and they say, look, by twenty forty, that's going to
Speaker 2: be as much plastic in the ocean as fish. And
Speaker 2: the point simply is that therefore there's a lot of pressure,
Speaker 2: from a lot of societal pressure to do something. So
Speaker 2: so far, so good, and that's very much appreciated. I
Speaker 2: think the two additional factors that we really drew attention
Speaker 2: to in this report. The first is is technology, and
Speaker 2: in a similar way to what you've seen elsewhere in
Speaker 2: the energy sector, new technologies are coming along which make
Speaker 2: it possible of a plastics functionality but without the same
Speaker 2: amount of plastic. And that's what this report Breaking the
Speaker 2: Plastic Waves done, is it's analyzed that it's it's looked
Speaker 2: at the three classic areas of reduced and substitute and recycle,
Speaker 2: it's costed them in in tremendous detail, and it's figured
Speaker 2: out that you can have the same plastics functionality but
Speaker 2: at half the amount of plastics and actually, interestingly enough,
Speaker 2: at zero point seven million more jobs. So there's some
Speaker 2: interesting new technologies and new ideas materializing to meet the
Speaker 2: aspirations of society. And then finally you have politicians are
Speaker 2: actually starting in certain areas to put these to put
Speaker 2: these ideas into practice. And you know, we highlighted in
Speaker 2: this report what's going on in Europe and China above all,
Speaker 2: but you could talk also about some of the subs
Speaker 2: going on India and in Africa. But if I highlight
Speaker 2: what's happening in Europe specifically, the the the the European
Speaker 2: Commission now is talking about having a at tax on
Speaker 2: plastic waste, a non recycle plastic waste of of eight
Speaker 2: hundred euros a time, so basically one thousand dollars a ton,
Speaker 2: which is quite close incidentally to the externality costs that
Speaker 2: we calculate. And they're also saying that you've got to
Speaker 2: have all plastic packaging is going to have to be
Speaker 2: recyclable by twenty thirty. That don't forget, it's a third
Speaker 2: of all plastics, just over a third of all plastics
Speaker 2: is in plastic packaging. And then they're forcing companies to
Speaker 2: use more recycle material in their products.
Speaker 1: So the point.
Speaker 2: Simply is that in response to the demands of society
Speaker 2: the opportunities made possible by technology, you're now having politicians
Speaker 2: actually driving change. And the suggestion we make in this
Speaker 2: report is that some of the solutions which are being
Speaker 2: found in Europe and are likely to be found in
Speaker 2: China are going to be rolled out across the rest
Speaker 2: of the demand vectors in the world, across the rest
Speaker 2: of the merging markets, and that itself, all of this
Speaker 2: really starts to question the industry's assumption of a massive, continued,
Speaker 2: eternal growth in plastic demand.
Speaker 1: In the US, there are several fairly large, you know,
Speaker 1: patrick chemical facilities being built right now that aren't even
Speaker 1: online yet and already seem like they're destined to lose money.
Speaker 1: Are you seeing any kind of a slowdown in like
Speaker 1: project financing on these kinds of you know, the at
Speaker 1: then cracker facilities, the sort of big petrochemical plants.
Speaker 2: Well, of course the ones which have been finance are
Speaker 2: still going ahead, but I'm absolutely convinced that behind the
Speaker 2: scenes people are now already significantly trying to curtail the expansion,
Speaker 2: and not sadly because of anything that we've written, or
Speaker 2: because they've suddenly got religion. No, it's because of the price.
Speaker 2: The price of intermediate chemicals like has collapsed, and as
Speaker 2: this is obvious that that you're expanding into US into
Speaker 2: an oversupplied market. So so I think I think we
Speaker 2: will see many more cancelations over the course of the
Speaker 2: next couple of years. And I think we'll also see
Speaker 2: some big be write downs as people who've sunk a
Speaker 2: couple of billion dollars into building a big pet camp
Speaker 2: plant and on the anticipation of selling it selling the
Speaker 2: material into the emerging markets, as they begin to realize
Speaker 2: that that market's not there.
Speaker 1: Is there one part of this report that you most
Speaker 1: hope people kind of pick up on and pay attention to.
Speaker 2: I think the the one part of the report that
Speaker 2: we wanted to be was our original focus, and it's still
Speaker 2: really significant, is to think not just about the plastics industry,
Speaker 2: but to think about the implication of low growth in
Speaker 2: the plastics industry for the oil industry. And there's a
Speaker 2: lot of talk at the moment about peak oil and
Speaker 2: have we hit peak oil demand? And I don't particularly
Speaker 2: want to focus on that, but this debate is really
Speaker 2: significant because if between half and all of expected demand
Speaker 2: growth from oil is actually from plastics, and if that
Speaker 2: growth in and of itself can now be questioned, then
Speaker 2: it just becomes considerably easier to question whether or not
Speaker 2: oil growth itself, oil demand growth itself is going to
Speaker 2: regain its twenty nineteen levels. So that's, I guess, the
Speaker 2: other angle we wanted to look at in this report.
Speaker 2: The other thing, slightly original thing that we did is
Speaker 2: we figured out the size of the plastic externalities, and
Speaker 2: just the points of me being that this is not
Speaker 2: an industry which, as how do I put it mildly,
Speaker 2: it's not an industry which has been particularly receptive to
Speaker 2: paying for the negative consequences of what it does right.
Speaker 2: And you know, the cost pert ton is about thousand
Speaker 2: dollars a time, which which actually sounds like a lot,
Speaker 2: but on a per person basis not very much. Actually
Speaker 2: it's about it's forty six dollars per person globally. So
Speaker 2: the point to me is that you have an industry
Speaker 2: which is which is polluting a lot and creating a
Speaker 2: lot of waste, and people don't like it, and actually,
Speaker 2: therefore I think is extremely vulnerable to any attempts to
Speaker 2: change it, and that is likely to play out over
Speaker 2: the next few years.
Speaker 1: It's a lot easier to talk about the negatives of plastic.
Speaker 1: It's harder for them to make the case that they
Speaker 1: do with oil, that it's just a totally necessary part
Speaker 1: of life or a central piece of the economy. You know,
Speaker 1: I don't know. It seems to me like it should
Speaker 1: be that much much more vulnerable to criticism.
Speaker 3: Yeah.
Speaker 2: No, I think the other point will as you know
Speaker 2: very well, the industry always says, look, you know, you
Speaker 2: desperately need plastic for ppe equipment, and you need plastic
Speaker 2: for you know, iPhone covers, and you know, and and
Speaker 2: and and they do the commission these wonderful studies saying
Speaker 2: that plastic is better than glass because it's lighter weight
Speaker 2: and all the rest of it. And and the answer
Speaker 2: to all of this stuff is just to go, okay, guys,
Speaker 2: that's great. I mean, we know your products great, thank
Speaker 2: you very much, but just you know, pay for picking
Speaker 2: the picking the stuff up after people have used it,
Speaker 2: and pay for all of the health costs and the
Speaker 2: and and the and the ocean costs. You know, if
Speaker 2: it's so great, then just pay for it. It's not
Speaker 2: not reasonable, right, And I think that's that's often lost
Speaker 2: in the debate about you know how great plastic is
Speaker 2: is that there are it is great, but there are
Speaker 2: costs which are borne by other people, and you need
Speaker 2: to pay for.
Speaker 1: Them, right right, Yeah, yeah, thank you so much.
Speaker 3: Very much.
Speaker 2: Very enjoyable, very enjoyable conversation.
Speaker 1: Yes, thank you, I appreciate it. All right, that's it
Speaker 1: for this time. Keep your eyes on the feed for
Speaker 1: our next season coming soon. I'll also be dropping some
Speaker 1: special preview episodes for some of the other climate shows
Speaker 1: coming up on the Critical Frequency Network, and we'll be
Speaker 1: back here soon. Thanks for listening, and we'll see you
Speaker 1: next time.