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Plastic could become stranded asset, warns MSCI

Global index provider MSCI has warned that plastic could become a stranded asset amid the shift toward electric vehicles and international efforts to cut down on fossil fuel emissions.

Oil demand for road transport may peak in 2025. In response, oil and gas companies are expected to focus more on petrochemicals such as plastic, according to the firm.

By 2050, more than half of oil demand may be for materials rather than energy. Oil and gas (O&G) companies such as Total and Formosa get more than 25% of their revenue from petrochemical sales, the company said.

“But while 80% of these petrochemicals are used as the building blocks of plastic materials, a growing legal and consumer backlash against plastics pollution may threaten the economics of further petrochemical and O&G developments,” MSCI said.

Towards the end of last year, the European Parliament passed a directive to enforce restrictions on single-use plastics by 2021. Worldwide, restrictions on single-use plastics had been implemented in 60 countries by the end of 2018.

“If this trend continues, petroleum assets envisioned as plastic inputs could end up as stranded as those intended for combustion,” MSCI said.

According to the funds index provider, there are three main threats to demand for O&G’s virgin plastic feedstock. These are:
     •   Increased demand for recycled materials
     •   Development of alternative solutions, such as truly biodegradable plastics
     •   Shifting demand from plastics to alternatives, such as paper-based packaging

"While alternatives and recycled content aren’t going to replace fossil feedstock for plastics overnight, investors may question the economics of large capital investments that expands oil and gas reserves or refineries that may end up as stranded assets given the growth in anti-plastics legislation and growth in alternatives to fossil feedstock,” said MSCI’s vice president of environmental, social and governance research, Sam Block.

“Investors may want to engage with companies to be more prudent in their capital spending or otherwise lower their valuations of these companies.”

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