Cost a key challenge to low-carbon polyethylene production

The challenges posed by plastic waste, emissions, and climate/environmental issues are anticipated to intensify until effective policies and actions are implemented to reverse the trend.

The plastic value chain is grappling with the trilemma of security, sustainability and affordability, placing substantial pressure on stakeholders. As a result, there is an increasing demand for the industry to address and alleviate the adverse environmental effects of plastic consumption, including polyethylene.

Low cost, versatility and weatherability are PE’s major advantages, with applications in household and food containers, toys, food and nonfood packaging film and sheet, retail and trash bags, geomembranes, pipes, house wrap, pails, totes, crates, caps, closures and plastic bottles.

Polyethylene constituted a third of the world's polymer market in 2022, according to S&P Global Commodity Insights. However, the global PE market is currently contending with surplus capacity, subdued demand growth and diminishing profit margins. The polyethylene sector is also undergoing a phase of transformation and innovation, driven by the need to address environmental concerns, particularly since ethylene production ranks among the largest sources of CO2 emissions in the chemical industry.

Sustainability goals by brand owners, converters and producers are currently driving efforts to produce low-carbon polyethylene. For example, it is estimated that using bioethanol-based ethylene would translate into a carbon emissions reduction of approximately 60%, while the use of hydrogen in the cracking furnace together with carbon capture and storage, like what petrochemical giant Dow is considering for its plant in Fort Saskatchewan, Canada, has essentially net-zero carbon emissions.

Technologies such as the use of sustainable feedstocks like bioethanol and the production of polyethylene from mechanical recycling, using pure polyethylene waste stream, can also contribute to the decarbonization of polyethylene production.

Other emerging recycling technologies such as the pyrolysis of plastic waste are not being developed with the idea of reducing carbon emissions as this pathway is too energy intensive, but with the goal of reducing plastic waste that ends up in landfills and handling plastic waste that is difficult to recycle via mechanical processes.

The costs, both capital expenditures and operating expenses, of these sustainable technologies are expected to be much higher than those of conventional technologies. Some of the key reasons for the high costs include higher capital costs, higher feedstock costs and smaller plant sizes, among other factors.

For these technologies, the price premiums required to sustain decent margins were found to commence at approximately 10%, potentially escalating to over 100%, contingent on factors such as technology, location and government incentives. Currently, prices for virgin polyethylene resins are close to $1,200/mt. Conversations with North American converters revealed that these premiums would also fluctuate based on the specific application of polyethylene, such as packaging, pipe, conduit, among others. It is crucial to emphasize that the determinants and influences behind these price premiums are multifaceted, necessitating collaboration among all stakeholders in the polyethylene value chain.

With technology developments moving sustainability forward, there is an ongoing debate as to whether polyethylene markets would be able to absorb a price premium from new, higher cost production technologies. At the same time, questions are being asked regarding who within the supply chain should be covering those costs.

Location and incentives in specific regions, such as the IRA in the US, play a significant role in the premiums required for the different technologies noted above. Additionally, premiums varied depending on the key participants along the PE value chain -- for resin producers, converters, brand owners and consumers. In the case of the converters, such premiums were dependent on the application of the polyethylene.

"The Economics of Low-Carbon PE – Will Consumers Pay for Sustainability," the Chemicals Consulting team fleshes out these topics in a recent study published by S&P Global. The team developed a stepwise approach to understand the potential range of costs to produce low-carbon polyethylene, the expected return on investment, and the market premiums required to generate expected returns in countries such as the US, Canada, and Brazil.