With the market for fossil fuels in decline, the oil industry is investing heavily in the chemical and plastics industry instead. The strategy seems to be working: the plastics industry is growing faster than the global economy. Multibillion-dollar subsidies from states and publicly funded banks, combined with weak legislation, are reasons behind the rapid growth, according to a new report from Lund University in Sweden.
During the past three years, Fredric Bauer, researcher in environmental and energy systems at Lund University, has mapped and analyzed the global chemical industry together with research colleagues. The conclusions are presented in the report "Petrochemicals and climate change: Powerful fossil fuel lock-ins and interventions for transformative change". Some results have previously been published in scientific journals, while others are completely new.
The researchers examined the world's leading chemical companies and their connection to the oil industry. The picture presented is clear: many of the world's largest oil companies, such as Saudi Aramco, Exxon, Shell, Sinopec and Petronas, are successfully selling more and more oil to the chemical industry.
"We see it clearly with oil states that want to ensure that there is a market for their product. They build new fossil-based chemical industries themselves or through partnerships. The one leading the pivot is Saudi Arabia, but the tendency is the same in other parts of the Middle East, Central Asia and parts of Africa. Plastic is the big product, but it also involves fertilizers, pharmaceuticals and paint", Fredric Bauer explains.
The scale of the change stunned the researchers.
"That the industry would reposition itself when the classic fuel market is declining, and the number of electric cars increasing, is not that strange. However, what we see now is a completely unrestrained production growth. This surprised us", says Fredric Bauer.
The rapid expansion of the petrochemical industry risks stifling the growth of budding chemical companies that are trying to invest in sustainable, and currently more expensive, production. This includes bio-based or recycled chemicals which in turn can be used to manufacture fossil-free plastics, paint, cleaning agents and other common chemicals.
The accelerated growth has partially been made possible by large-scale financing from various public actors. This became clear when the researchers examined the financing of large-scale new investments over the past decade.
"This was perhaps the most shocking finding. Contrary to the Paris Agreement, which clearly states that the financial sector must contribute to a fossil-free transition, billions are flowing into new fossil-based projects. Public actors such as development banks and export credit institutions are contributing to this", says Fredric Bauer.
In the last ten years, the companies have received financing from public funds amounting to almost 50 billion dollars. The transactions are primarily being made in the form of loans and guarantees from state-funded development banks and other financial institutions, and were largely from countries in the West.
"We identified large capital flows from the US, Canada, Japan and the UK. Countries in Asia such as Korea and China also invested financially", says Fredric Bauer.
Public funding also lends legitimacy to the projects, and thereby increases the chances that the projects will be able to receive private funding from investors.
