Plastics Reflections Webinar Recap: Navigating Volatility in the Oil and Gas Industry

June 16, 2023 • Posted in Webinars

As more stakeholders embrace cleaner power sources, the oil and gas industry is facing increased pressure to diversify its business strategy. The shift away from fossil fuels presents an opportunity for plastics manufacturing to play a major role within the oil and gas market and become a crucial driver of the industry’s success. Still, the path forward remains unclear due to sociopolitical and economic volatility.

In the latest installment of M. Holland’s Plastics Reflections Web Series, a panel of experts from across the plastics industry met to discuss the current state of the oil and gas industry and the resulting impact for plastics manufacturers:

During the broadcast, an overview of the North American polymer industry was followed by a vibrant discussion of the changing oil and gas landscape. The panel dug into how market forces and government subsidies are accelerating the move toward a more diversified energy mix. Below, we share major takeaways from the panel. To access the recording of this webinar, click here.

Advantaged Feedstock Availability Drives Polymer Production

According to Andrew, about one-third of the capacity expansions for polymer production are driven by advantaged feedstock, or an abundance of raw ethane from fossil fuels in a given market. It is increasingly common for the global plastics business to be driven by the availability of feedstocks. North America currently benefits from ample supplies of shale gas and oil. Interestingly, Andrew said polymer consumption decreased across North America in 2022, but the plastics industry ramped up polymer production to accommodate the generous amount of available feedstock.

Since the early 2000s, shale gas and oil extraction has expanded across the world, leading to an increase in available feedstock. Fracking, or hydraulic fracturing, has become common practice in North America, and has made the U.S. one of the largest suppliers of oil and gas in the world. This is largely due to swing production when fracking, Bency remarked. “The flexibility we have in the U.S. to turn [fracking] on or off depending on the political wind makes it very useful,” he said. Despite oil and gas prices being highly susceptible to economic and political events, fracking allows the country to remain cost competitive in the global marketplace.

A key question considered by the panel is whether the world is approaching “peak oil” when production will peak due either to falling demand or the depletion of available feedstocks. In his economic overview, Andrew noted that fossil fuels remain a critical resource for a growing world economy. Regarding the depletion of available feedstocks, Bency noted, “Every time we set a target, the goalpost changes and we see something different: There’s a new reservoir, there are new ways of getting oil and gas out of the soil.” The panel’s consensus: peak oil is yet to come but producers but may arrive in the next decade or two.

Government Subsidies Expedite Sustainability, But Market Forces Prevail

Legislation like the Inflation Reduction Act encourages manufacturers to move toward renewable energy sources with government subsidies and incentives. Many have debated the ultimate power of policy in affecting the market. When that debate reached the webinar, panelists agreed that government incentives can accelerate the adoption of alternative energies and sustainable practices, but market forces will prevail in an industry so heavily influenced by price volatility.

Chris used the polyethylene market as an example to highlight the dynamics at play: “There’s a push, to some degree, on recycled content for polyethylene that’s being driven by the market. There’s an absence of regulation, yet the market is calling for change,” he noted. “It’s more about the rate of adoption and investment as to whether or not it survives.”

Still, Andrew believes our markets will not reach sustainability goals without some intervention from governments. “Recycling is not economic for many of the manufacturers active in the business,” he said, ultimately boiling it down to the fact that volatile prices of both polymers and oil dictate goals before sustainability does. Even if markets demand change, they’re going to need help from the government to truly make it happen.

Regulation aside, the options for plastics created from non-wellhead sources are growing. Chris discussed some of the sustainable materials Canada-based resin producer NOVA Chemicals is creating, including recycled polyethylene with some of the products being approved for food contact. The producer has set a target of selling 30% recycled content by 2030, underscoring that plastics producers can be proactive and not have to wait for market forces or regulation to get ahead of the sustainability push.

Diversifying Energy Sources Will Only Increase in Importance

While fossil fuels will remain essential for plastics manufacturing, the significance of alternative energy sources is steadily rising. Activists and the market continue to call on many industries to make the switch toward renewable energy. This market pressure has forced many manufacturers to feel they have to choose between fossil fuels or greener solutions such as wind or solar power.

In the webinar discussion, Andrew made an important remark: “Fossil fuels are essential, but they’re not liked by a lot of people. We have to accept that oil, coal and gas are the major methods by which we generate electricity, and that will continue for the foreseeable future.” Fossil fuels have been key drivers of economic growth for over two centuries, and currently account for roughly 80% of our world’s energy supply. They remain an important feedstock for plastics production. Still, the panel agreed fossil fuels do not have to be the only source of energy.

“There is no one answer to the energy issue. I think the whole picture going forward is an all-of-the-above situation,” Chris said. Along with nuclear, green hydrogen was an alternate energy source option presented in the discussion. Ton, who leads M. Holland’s sales in Europe, expressed optimism for the green hydrogen industry in combination with other alternative and non-renewable sources. The push for energy diversification is largely attributed to public sentiment, according to Ton. Europeans want to move away from fossil fuel, but need the synergy across political and industrial realms, along with the infrastructure to back solutions like green hydrogen.

Texas, considered by many to be a leader in the oil and gas industry, has begun making moves toward renewables as well. According to Bency, abundant renewable resources, technology innovation, transmission infrastructure and a desire for energy independence and diversification are all strong drivers of the state’s focus on alternative energy. “We’re very much still a land of oil and gas, but there are a lot more investments happening that can benefit not only Texas, but the U.S. as a whole,” Bency said.

Remaining Flexible in the Face of Volatility

To close out the conversation, our panelists shared their advice for plastics manufacturers in how to best manage the volatility in the oil and gas industry. Bency reminds everyone that “this will be a gradual change and growth, rather than a drastic and immediate change. Stay the course and do the very best you can to recycle and adopt renewable, alternative energy sources.”

Andrew added some food for thought on the strategy around sustainability in the plastics industry: “If plastics didn’t exist today, but someone invented them tomorrow, we would be selling it as a green technology. But we don’t, and that’s what we ought to be doing.”

As goalposts move, feedstock supplies fluctuate and sustainability pressures mount, the oil and gas industry will continue to evolve. With constant curveballs, maintaining a flexible and forward-looking business strategy will be essential for plastics manufacturers to navigate the volatile market and adapt in an ever-changing landscape.

Click here to access the full webinar broadcast and dive deeper into the conversation. To stay informed with updates from M. Holland, subscribe to our content and follow us on LinkedIn, Facebook and Twitter.

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