Our traditional linear economy – which is geared to consume resources on a single-use basis – is no longer sustainable. Economies need to start re-sourcing, recycling and reusing waste, particularly plastics, as part of a circular economy that reduces natural resource consumption.

As every year goes by, more and more of the Earth’s resources are used up, and these raw materials, including numerous hydrocarbon-based products, embark upon a 'take-make-waste' journey, often ending up in landfills. No major industries currently operate in an entirely circular way.

However, by fundamentally rethinking how we produce, consume, process and reuse our resources, the global oil and gas industry can not only improve the environment and enhance biodiversity but also generate new economic opportunities – and still produce the energy and products we need.

There is a strong need for circular economy initiatives within the petrochemical industry to minimise waste generation, address environmental concerns and enhance resource efficiency. Renewable streams and plastic recycling are two essential focus areas within the circular economy framework.

Among the oil and gas industry’s most used products, plastics are the most relevant to the circular economy. Increasing circularity offers opportunities to lower costs, improve operational efficiencies, and opens the door to new products and market segments.

Adapting value chains

In a circular economy, the series of consecutive steps that result in a finished product will have to adapt to the continuous recycling of resources, and this can potentially impact the monetary value of supply chains, according to GlobalData’s Circular Economy in Oil and Gas Thematic Report Overview.

The report revealed that natural resource use has tripled over the past 50 years and continues to increase by more than 2% every year. In fact, should the pace of consumption and production continue, overall resource use will reach 160 billion tonnes (t) by 2060, up 60% from 2020.

This will have a severe impact on the environment, and as such governments are adopting policies to advance the circular economy.

The EU’s Circular Economy Action Plan includes targets for recycling, reducing waste and promoting ecodesign. Many countries such as China, Japan and the US have adopted policies based on their specific socio-economic landscape, political priorities and environmental challenges.

The petrochemical industry is also active in exploring collaborations and partnerships with stakeholders to create effective recycling systems, improve infrastructure, and develop sustainable end markets for recycled plastics.

Opportunities within the industry

Does the circular economy present a long-term opportunity for the global oil and gas industry?

The GlobalData report indicates that oil and gas companies can invest in producing circular polymers, which make it easier to recycle plastics. Glass and metals can be recycled indeterminately without affecting their purity or quality, whereas plastic can only be recycled maybe three times before the quality reduces.

The companies can also diversify into bioplastics, which offer better recycling potential.

However, the report indicated that companies will still need to rely on financial incentives from governments to productively pursue circular economy objectives, “because of the high inherent cost involved in incorporating a circular economy”.

Regulatory trends

Several countries including the US, Australia, China and France have already banned single-use plastics, while some US states have enacted laws to promote the recycling of plastics and prohibit plastics placed in landfills.

In Europe, the EU is promoting the use of recycled plastic in various industries such as packaging, construction, automotive and electronics.

It has also initiated the Circular Plastics Alliance, which brings companies from various industries onto a single platform to devise new value chains geared towards forming a circular plastic economy for Europe.

Not a natural fit

The concept of a circular economy does not naturally fit the oil and gas industry. Much of the industry’s output involves the production of fuel via fossil-based and non-renewable energy sources, which naturally incurs waste.

However, the petrochemical sector produces usable materials, other than fuels, for a variety of applications, with plastics being the most widely used.

According to GlobalData’s 2024 Global Plastics Market report, the global plastics market is expected to grow at a compound annual growth rate of 2% between 2024 and 2030. It added that Asia continues to dominate global plastics consumption, primarily due to the growth of the packaging sector in countries such as China, India, South Korea and Japan.

Establishing a circular economy would have a transformative impact on the oil and gas industry. Industry leaders such as BP, Shell and TotalEnergies have already set themselves targets within the circular plastic economy, using such approaches as mechanical recycling, chemical recycling and bioplastic production.

However, oil and gas companies involved in recycling plastics are significantly impacted by the cost of recycling – the cost of virgin plastics is significantly lower than the recycled material.

Also, low oil and gas prices could further impact the companies pursuing plastic recycling, as diminishing prices cause the price of virgin plastic to fall further, making recycled plastic uncompetitive.

Initiatives under way

Several major players already have initiatives in place. A spokesperson for chemical producer BASF said the transition to a circular economy “is a complex process that requires collaboration and investment across the value chain”.

“The establishment of a circular economy will open up new markets and opportunities” and in early 2024, BASF launched loopamid, a solution for more circularity in the textile industry.

The petrochemical industry also needs a supportive regulatory and policy framework to incentivise a circular economy and ensure a level playing field, said BASF.

BP aims to eliminate operational waste and pollution while enabling the use of materials that offer circularity. It is working with Clean Planet Energy, a UK-based plastic waste recycling company, to help it pursue a circular plastics business plan. The partnership aims to process 20,000t a year of waste plastics into naphtha and ultra-low-sulphur diesel.

In the US, Dow Chemical is committed to reducing plastic wastage and improving its recyclability. It has collaborated with bio-feedstock suppliers to derive bio-circular feedstocks from vegetable waste and other industry residues to develop bioplastics.

A spokesperson for Dow said transitioning to a circular economy “is critical to reducing plastic pollution” and the company is “committed to creating a fully circular plastics system worldwide, where every type of plastic waste can be recycled and recycled content is incorporated back into all products”.

ExxonMobil has developed its proprietary Exxtend technology for advanced recycling of plastic waste. The technology is employed at its recycling facility in Baytown, Texas, which began operations in December 2022.

According to an ExxonMobil spokesman, the “world needs a broad set of solutions to address plastic waste, and advanced recycling is one of them. Our technology can transform plastic waste into raw materials that are used to make products people need.”

He added that “advanced recycling is a new technology, so it will take time to expand and take hold. It will need all of us – industry, government and our communities – to help create a circular economy for plastics.”

In July 2023, Saudi Aramco successfully demonstrated a chemical recycling process for plastics at its SATORP refinery, jointly owned by Aramco and TotalEnergies. The circular polymers derived from plastic waste have already received ISCC+ certification.