For oil, there is a green swan lurking in this plastic bag


As my colleague David Fickling writes, the growing demand for petrochemicals is an article of faith in the oil and gas business, and one that is transmitted much more these days to compensate for the disturbing narrative of electric vehicles by stopping gasoline consumption . In its most recent Energy Outlook, BP Plc identified the demand for “unburned” oil as the main source of projected growth until 2040, with single-use plastics representing almost 40% of those 5.5 million barrels per day .

Under an alternative future in which governments aggressively eliminate single-use plastics and ban them completely by 2040, BP’s outlook has a peak in world oil demand at the end of the 2020s. That seemed like an era. far from the jetpack when we were watching dance bags, but now it looms with a monotonous imminence. This is very important because the oil industry plans to invest north of $ 34 billion a year in petrochemical products until 2024, according to estimates by Sanford C. Bernstein, equivalent to building the entire fixed asset base of a large company, Chevron Corp .

China’s latest plan is not close to a global Ziplocs moratorium. However, it presents a risk that goes beyond this or that forecast for oil demand.

It happens that one or two days after the announcement of Beijing, the Bank for International Settlements published a new report called “The Green Swan”. This exposes the risks that climate change poses to the global financial system and the limitations of current models to quantify potential impacts. One point raised is that, although economists traditionally support carbon pricing to mitigate climate change, “given the size of the challenge ahead, carbon prices may need to skyrocket into very short periods of time. much higher than those currently prevailing. ” In other words, we leave it too long, so now we need to make carbon prohibitively expensive.

Analogous to that is the act of simply banning things, which is where China’s new regulations come into play. Those are not related to carbon per se, but the mechanism is the same. In theory, a mixture of price signals, recycling programs and consumer education could moderate the problem of plastic pollution. In practice, less than one fifth of the plastic is recycled, a finding sometimes framed as a growth engine for the industry. The relatively low value of the product, the use of mixed plastics and the general confusion of the consumer about what is included in the recycling bin are major obstacles to raising that figure.

Faced with that, more national and local governments are choosing to effectively establish the “price” for certain plastics at some level that tends to infinity just by banning them. In that sense, recycling difficulties may be less a bullish argument for plastics and more a precursor to drastic measures.

The use of interdiction policies, rather than market-driven solutions, is itself a green swan: fiduciary dislocation that is difficult to model. A global ban on single-use plastics is not required to present a problem to an oil industry that (a) made petrochemicals a central part of its growth history and (b) began deploying billions in projects ranging from oil in Saudi Arabia Asian joint ventures of Co. with shale crackers from Exxon Mobil Corp. on the Gulf coast.

“Stopping plastic use altogether will be difficult, but killing demand growth will require solutions for only 3% of global demand each year,” writes Kingsmill Bond, carbon tracker energy strategist and co-author of an upcoming report on the future of plastic demand An ethylene plant that operates at 60% capacity would not be stranded in itself, but it would not be an essential property either.

The cloud of uncertainty that accumulates on the future demand for oil increases the capital cost of the industry, which manifests itself in demands for higher cash payments. Larry Fink of BlackRock Inc. made the same point in the weather chart last week (including the potential for green swans, although he didn’t use that phrase). Today’s teenagers don’t sit down to film the pollution; they address Davos and the lambast tycoons about it. In this sense, the ban on China’s stock exchanges may be less important because of their specific impact on oil volumes and more because of their overall impact on growth expectations and, therefore, the sentiment and risk premiums for oil related assets. As much as I hate to admit it, sometimes a bag is more than a bag.

To contact the author of this story: Liam Denning at

To contact the editor responsible for this story: Mark Gongloff at

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Liam Denning is Bloomberg’s opinion columnist on energy, mining and commodities. He was previously editor of the Heard on the Street column of the Wall Street Journal and wrote for the Lex column of the Financial Times. He was also an investment banker.


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