A 12% reduction in the Oil and Gas market does not necessarily mean a 12% cut in profits. Well done Unilever……

My eye has been caught recently by several apparently unconnected news reports, which, when analysed collectively, may lead to an interesting conclusion.

How many of us during 2020 have used any glue, or sealant, such as the silicone used to waterproof the edge of a bath? (I’m guilty of that one Your Honour). How many have used a rust control compound, or put on make-up, eaten food with flavourings or fragrances, or used any pharmaceutical drugs, printer cartridges, paint, plastic bottles or disinfectant?[1]

If you’re now holding your hand up to everything on my list, don’t worry, you’re not alone. You are simply one of the millions of people all over the world who have recently used petrochemicals in one form or another.

Also known as petroleum distillates, or abbreviated to petchems, these substances are obtained from petroleum and other fossil fuels during refining. They are the building blocks for solvents, detergents, adhesives, plastics, resins, lubricants and gels among other products.

Petrochemicals are mainly produced in a few large plants across the globe; Jubail and Yanbu in Saudi Arabia, Texas and Louisiana in the US, Teesside in the UK, Rotterdam in the Netherlands and Jamnagar in India. All these locations contain clusters of manufacturing units and feed off common large-scale infrastructure such as power stations, storage, port facilities and road and rail heads. 50% of the UK’s petro and commodity chemicals are produced at the Northeast of England Process Industry Cluster (NEPIC).

Prior to COVID 19, the International Energy Agency were convinced that plastics and other petrochemical products would play a major role in increasing global oil demand between now and 2050, more than offsetting the lower consumption of motor fuel as more and better electric vehicles come on line. The primary reason for this predicted increase in consumption of petrochemical products was the rapid growth of populations and economies in Africa, India, Asia and especially China[2]. The IEA refers to petrochemicals as the “blind spot of the global energy debate”, and at approximately 12% of total oil demand in 2017 (12 million barrels per day [mbpd]), they are more than worthy of discussion. Back then, super-majors such as Exxon Mobil and Royal Dutch Shell and national operations in Kuwait and Saudi were betting on the rising demand for plastics by investing in new petrochemical plants.

I am sure that anyone reading this disposes of their rubbish responsibly. But the fact remains that 8 million tonnes of plastic are thrown into the ocean every year, joining the estimated 150 million tonnes already there.[3] World Wildlife Fund figures indicate that 90% of seabirds have plastic in their stomachs, and that one in two marine turtles have eaten plastic.

But this is now a new world, and we are less sure of how the future looks than we once were. Perhaps the strongest sign of this is Unilever now pledging to drop all fossil fuel elements from its cleaning products by 2030, in order to reduce carbon emissions.[4] Obviously, this year the demand for cleaning products has rocketed, as every visible surface in every home gets disinfected to within an inch of its life. But Unilever have noted that customers are demanding sustainable products as well as effective ones. At a cost of 1bn euros, the consumer goods giant will replace petrochemicals with ingredients made from plants and marine sources such as algae.

The company believes that if it can make this green transition successfully it can also reduce its overall carbon footprint by an eye-watering 20%. This year the Carbon Disclosure Project, a global non-profit group, ranked Unilever as one of only seven of 182 major companies to achieve an A rating based on its governance around climate change, water and forests.

And the involvement of the big players does not stop with a customer like Unilever. Saudi Aramco is now shelving multi-billion-dollar petrochemical projects as it strives to preserve its dividend. The world’s biggest oil company is abandoning plans to build a $20 billion crude-to-chemicals plant at Yanbu on the kingdom’s Red Sea coast, according to two people familiar with the matter, who asked not to be identified because they aren’t authorised to speak to the media. [5]Aramco is also reviewing its decision to buy 25% of the Sempra Liquefied Natural Gas plant in Texas. (Gas is an important feedstock for the petchem industry).

And my final news strand is the story that the UK Government is set to double the fee for plastic shopping bags to 10p from April 2021. The original 5p levy of 2015 took an estimated 15 billion bags out of circulation in England, and studies indicate that it did reduce plastic waste on beaches and in the sea. [6]

So What?

I think these news reports coalesce into the prediction that whilst global demand for household products will increase towards 2050, as both populations and economies grow, the demand for fossil-fuel based products may well decrease. With producers like Aramco, manufacturers like Unilever, governments like the UK and consumers like you and me all driving towards reducing the use of petrochemicals (for widely different reasons), there is a sense of unstoppable, if still slow, momentum.

If the reduction in demand for petrochemicals comes to pass, it could feasibly lead to a 12% reduction in global oil demand. But the key point is that the demand for the end products will still be there, and will probably have increased. Therefore hydrocarbon companies, energy companies, oil companies (call them what you like) would do well to consider pivoting early, and diverting some of their undoubted chemical expertise to the R&D for sustainable products to replace those for which they currently supply fossil fuels. If they can follow Unilever’s example and manufacture environmentally friendly products, whilst at the same time significantly reducing their current carbon emissions, they could secure themselves a big early share of a ballooning market and make some friends into the bargain. What’s not to like?

Related Information:

If you are interested in environmental issues, Toby’s blog on Socially Responsible Food may also be of interest. However, Senior Consultant Stuart Wallace’s blog about the ongoing challenges being faced by the chemical industry may also be worth a read.

If you have your own opinion on what Toby has written, please feel free to comment.