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Circular Plastics - Anticipating Disruptions

19 May 2021 Robin Waters

Shifting the plastics industry toward circularity will require unprecedented investment. Cost and complexity will be major sources of risk, and with funding increasingly driven by environmental considerations, the terms of economic viability are in flux. Participants in the value chain will need to anticipate disruptions that are sure to emerge as the major stakeholders align to push the transition forward.

Four sets of actors will need to align to address the complexity and determine the efficacy and pace of the plastics industry's transition from a linear to circular model: (1) The financial community, which now assesses companies and projects through the lens of Environmental, Social and Governance (ESG) Principles; (2) Governments coalescing around decarbonization and setting the rules; (3) Alliances driving consumer priorities as global communications bring instant transparency; and (4) Industry, which develops the technologies, builds the assets, and manages the cost.

A look at pyrolysis, one route for the molecular recycling of mixed plastics waste, illustrates how the interaction between these groups can disrupt the value chain. Pyrolysis recycling involves heating the polymers in an anaerobic atmosphere and generating an off gas for use as a fuel, a solid "char" for fuel use, and a core product of mixed liquid hydrocarbons comparable to naphtha. The output can be sent to a steam cracker or a fluid catalytic cracking (FCC) unit for olefins and fuel component production depending on the quality. Producing high quality pyrolysis naphtha from mixed plastics waste is a challenge that leading technology providers are working to meet.

As the infrastructure for recycling increases, so does the naphtha supply pool. Steam crackers are agnostic toward naphtha sources except with regard to quality as measured by PIONA (paraffins, iso-paraffins, olefins, naphthenes, aromatics). Depending on the quality, pyrolysis naphtha will be directed to either refinery reformers or naphtha-based crackers. An increasing supply of pyrolysis naphtha will also reduce needs for refinery/oil-based naphtha production, and this will domino through the feed system: less oil, less natural gas liquids (NGLs), which may, for example, mean less investment in oil to chemicals process.

As the four groups of stakeholders seek to advance the chemical recycling infrastructure, one should expect policies to appear that promote the use of chemically recycled content as well as bio-based feedstocks as alternatives to fossil-based feedstocks. As a result, policies may be implemented that incentivize the production of chemically recycled pyrolysis naphtha; this would lower the cost structure for naphtha crackers in a way not available to light feed crackers. The implication is a further flattening of the integrated polyolefins cost curve.

Mass balance accounting is a methodology that allows polymer producers to measure progress towards the circular production of plastics. It is one of several approaches to tracing materials flow in complex value chains. Polymer producers can use mass balance accounting to measure the content of recycled or bio-based feeds in the finished polymer. The ability of polymer producers to measure progress towards circularity also allows regulators to develop measurable policy and potentially extend producer responsibility or other tax schemes or incentives to promote recycling to the broader industry. As policy increasingly drives the energy transition and decarbonization and production of higher quality pyrolysis naphtha increases, one may anticipate a shift in the competitive relationships of heavy (naphtha) and light (natural gas liquid, or NGL) ethylene crackers.

The flattening of the plastics cost curve by the pyrolysis of plastics waste may also positively impact the ability to recycle the growing volumes of plastics waste. In the future, global growth in plastics waste generation will be located in regions with an emergent, consumption-oriented middle class. The incumbent "build-to-export" model, in which petrochemical assets are placed in low-cost, fossil-based regions, creates a disconnect between the generation and collection of plastics waste and the infrastructure needed to use recycled feedstocks, including pyrolysis naphtha. A shift toward asset builds in demand regions would alleviate this disconnect and provide those regions with the same options more developed regions. Each region will look to make informed decisions that consider the logistics tradeoff between moving pyrolysis naphtha vs. building assets.

IHS Markit Circular Plastics Service provides a comprehensive, scenario-based evaluation of how the plastics value chain is expected to transition from a linear to a circular economy. It addresses implications of carbon intensity and the impact on future capital investments within the context of energy transition and carbon valuation, amid changing policy and regulations.

This service quantifies the magnitude and timing of substantial market shifts, identifies key regulatory and societal risks, and provides ongoing tracking of fast-moving developments. It is essential insight and analytics to reformulate your company strategy.

  • Enhance business strategy
    • Enhance confidence in technology and investment decisions
    • Anticipate, plan for and prepare response to regulations and policies
    • Develop scenarios to test base case business plan
    • Anticipate and adjust to demand risks, pace of change and inflection points affecting risk & opportunity
  • Optimize positioning activities
    • Performance vs competition
    • Address threats and seize opportunities
  • Redirect limited resources to strategy implementation
    • Replace internal data collection and primary analyses
    • Focus efforts on optimizing business planning and strategy implementation

Posted 19 May 2021 by Robin Waters, Director, Plastics Planning and Analysis, IHS Markit


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