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What if the pellets stopped flowing? Market conditions in the 1970s discouraged investment in monomer and resin production—until the industry was caught by surprise by surging demand and an oil embargo. Could we be headed that way again? (Photo: ExxonMobil)

In my blog of March 16, I referred to the Arab Oil Embargo of 1973-’74, which was accompanied by a quadrupling of crude-oil prices and widespread shortages of most major resins. While the oil embargo (and the simultaneous seizure and nationalization of oil businesses in the Middle East) did indeed cause the price explosion and prompted a rather clumsy allocation of crude-oil supplies to various industries by the Federal Government, the scarcity of resin supplies was a more complicated story.

According to Plastics Technology’s reporting at the time, the underlying cause of the sudden shrinkage of plastics supplies was a history of lagging investment in monomer and polymerization capacity resulting from unprofitably low prices and poor returns on capital. Surging market demand left the supply chain tottering and the oil embargo tipped it over.

Why I bring this up is an echo I hear in current debates about why oil prices rose so dramatically in recent months, briefly topping $126 a barrel, with some pundits predicting prices of $150 or more. (Meanwhile, hints of global economic slowdown have brought oil prices back from the brink, at least temporarily.)

An argument one hears frequently is that the Biden Administration’s so-called “war on fossil fuels” has discouraged investment in fuel transportation and production and has actively hindered oil and gas exploration. One reads that “activist investors” are pushing corporate governance toward sustainability goals, including “disinvestment” in fossil fuels—even at oil companies themselves! Whether or not you believe that these factors have had tangible effect, consider a parallel scenario:

The media are full of stories about the evils of plastics poisoning the global environment (oceans, groundwater and even the air). And legislatures from the city to state to federal level are rife with all kinds of ideas on how to discourage, cap or suppress production of plastics products of various kinds or plastics raw materials altogether.

There is a concurrent movement toward the “circular economy,” fueled by the philosophy that once a unit of fossil fuel is pulled out of the ground, it should be used and reused endlessly and never put back into the ground as landfill or into the air as combustion gases. If that circle were truly unbroken, it would presumably reduce (I don’t say eliminate) the need for fresh plastics to be produced.

So, what if all this hostile attention to the plastics industry had, over time, the effect of discouraging investment in new monomer and polymer production? Do we believe that overall demand for plastics in packaging, medical/pharmaceutical devices, transportation (weight savings are even more critical to electric vehicles), electronics, home furnishings, recreational and sporting goods—you name it—will do anything but increase over time? Especially as less developed populations of the globe aspire to First World lifestyles? I don’t think so.

So, could we find ourselves back in the raw-materials crunch of the 1970s? Low investment in production plus steadily increasing demand equals lower availability and higher prices, right?

Consider one other factor (and this is my own amateur hypothesis):

What if the sustainability movement succeeded in driving fossil fuels out of transportation, energy production and any other use that essentially involves combustion? In 2012, only 16% of global oil consumption was for “non-energy” uses. So, if the other 84% of oil usage were compressed to a sliver, what would happen to the corporate incentive to invest in additional fossil fuel discovery and production? And what do you think would happen to the prices of oil and natural gas if 84% of the market for them disappeared? Capacity to produce them would shrink proportionally. I’m no economist, but if little or no oil were needed for gasoline, diesel or jet fuel; and little or no natural gas was needed to produce electricity or heat buildings, I expect that anything else made from oil and gas—like chemicals and plastics—would become dramatically more expensive.

The movie “Jurassic Park” made a powerful case for not trying to resurrect the past. There’s not much about the 1970s that I would want back again—not the hair or clothing styles, stagflation, domestic and international conflicts or crime in the streets. Okay, the popular music wasn’t bad …. But anyway, it’s worth looking over our shoulder at the potholes that we fell into back then, so we don’t dig similar holes in our path ahead.