Gulf petrochems sidestep curbs from global plastics treaty

Reuters/Kyaw Soe Oo

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• Producers favour improved efficiency
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Major petrochemical exporters such as Saudi Arabia are unlikely to face mandatory production curbs despite latest efforts to craft a global plastics treaty and clamp down on single usage.

At a UN Environment Assembly in early 2022, member countries approved a resolution to end plastic pollution and forge an “international legally binding agreement” by the end of 2024.

On Tuesday, a fourth round of talks concluded in Canada’s capital, Ottawa, with no breakthrough on agreeing plastic production limits. South Korea will host a fifth and final round of negotiations from November 25 to December 1.

Plastics are made from hydrocarbons – oil and gas – with Gulf countries among major petrochemicals producers worldwide. 

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But the petrochemicals industry, Saudi Arabia’s second largest after oil, has been reeling as margins slumped to their lowest levels in 20 years because of oversupply and a lack of demand from China, a major buyer .

Saudi Basic Industries Corp (Sabic), the world’s fourth largest chemicals maker by revenue, according to Chemical and Engineering News, made a net loss of SAR2.8 billion ($739 million) in 2023, its first annual loss since at least 1990, S&P Global data revealed. Other Saudi producers were also in the red last year.

The prospect of production limits comes at an especially inopportune moment for the sector.

At the Ottawa summit a coalition of 66 countries, including France, the Netherlands, Spain, Australia and Mexico, urged the adoption of legally binding global rules that would “restrain and reduce consumption and production of primary plastic polymers to sustainable levels”.

However, an opposing bloc, known as the Group of Like-Minded Countries, which reportedly includes plastics makers such as Saudi Arabia, Qatar, Kuwait, Iran and China, rejects output restrictions.

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“The petrochemicals industry is positioning for mandates around recycling and the circular economy,” said Oliver Connor, vice-president of energy equity research at Citi in London. 

“That’s similar across other parts of the energy sector, such as oil and gas producers, where it’s about trying to reduce carbon intensity and improve efficiency, rather than cutting production.”

Historically, annual plastics output increases at 1.5 to 2 times global GDP growth.

“Production restraints or increased recycling would reduce that multiplier,” Connor said. 

In terms of volume, polyethylene and polypropylene are two of the biggest forms of plastic. Half of the production of these plastics is for single-use items, Connor said. Were countries to impose restrictions on the use of such products, it would lower demand for them, he said.

“But there are other uses of these plastics that are much stickier, such as construction, consumer goods and transportation,” Connor said. “These are big pools of demand that will likely expand aggressively given global population growth and Asia’s rising middle class.”

The United Nations has revealed that just 9 percent of plastic waste is recycled, with 79 percent disposed of in landfill and 12 percent incinerated.

“Mechanical recycling is used currently,” Connor said. “Scaling chemical recycling will be vital to meaningfully increase the proportion of plastic recycled.”

Connor said there was little chance of the final round of talks leading to a treaty that limited plastics production. Even if major plastic-producing countries wanted to do so, “it’s very tricky to coordinate production cuts in any industry”, he said.

“Petrochemicals will go in the same direction as other energy-related industries and focus on carbon intensity and competitiveness from a carbon perspective, not just from a cost perspective.”