IEEFA Report: Petrochemical Industry Faces Challenges

The global petrochemical industry is growing despite various criticisms and real-world mishaps. A recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) details the industry’s growth, and how the financial sector may become its limiting factor in the coming years.

IEEFA is a Cleveland, Ohio-based think tank that researches the energy industry and energy transition.

Petrochemicals, like ethylene and polyethylene, are compounds produced from petroleum products like oil or natural gas. The two aforementioned chemicals are key components in the manufacturing of virgin plastics.

The report analyzed nine companies in the oil and natural gas (O&G) and petrochemical sectors in the scope of their current and future sustainability, including Shell, which owns and operates an ethylene cracking plant in Beaver County. The O&G and petrochemical industry has been the target of much international criticism for its contribution to global greenhouse gas emissions, the production of single-use and virgin plastics, and the continued use of fossil fuels as feedstock.

IEEFA’s report notes that the industry, amid the concerns, is pushing forward, and in a big way. There are currently 12 petrochemical expansion projects globally that have received $70 billion in investments. Eight of the nine companies studied are “actively sponsoring” such projects.

The report discusses factors that could hinder the petrochemical industry in the future. Such considerations include the changing consumer market for plastics; the inadequacy of mitigation technologies; political action on the creation and use of virgin or single-use plastics; and changing lending policies at major credit agencies and banking institutions, which have put sustainability at the forefront of their decision-making processes and valuations. According to the report, three major credit agencies have included a company’s contribution to climate change in their credit evaluations, ultimately altering their creditworthiness.

In addition to potential funding problems, recent regulatory violations and incidents at petrochemical facilities have attracted further criticism. Shell’s cracker plant in Beaver County provides one such example, as the company has recently been ordered to pay almost $3 million in civil penalties for air quality violations. That amount is on top of a $10 million settlement reached in 2023 to resolve air pollution and other violations at the plant.

That consent order with the state was reached just weeks after an environmental group filed a federal lawsuit against the company, alleging that the plant is repeatedly exceeding emissions limits, putting nearby residents’ health in danger.

While petrochemicals will continue to be needed in the current economy, companies will face ongoing challenges and have to find ways to mitigate the environmental effects of their production and use as the transition away from fossil fuels continues.