European Breaks Announcing Closures: Two More
The trade situation with the US is causing concerns about industrial supply chains in Europe, and these worries are not unfounded. The European petrochemicals industry is currently undergoing a significant transformation, with several key factors driving the closure of steam crackers across the continent.
According to Olivia Steele, an olefins research analyst at Wood Mackenzie, up to 2.3 million tonnes of ethylene capacity could be up for sale in Europe. This massive capacity buildup, combined with overcapacity in the global market, is putting many European crackers at a substantial cost disadvantage due to higher natural gas prices.
The ageing infrastructure of many European steam crackers, which often operate below 80% capacity, is another major issue. These smaller, older plants are uneconomical to run and are being closed down or scheduled for shutdown between 2022 and 2027.
The petrochemical industry is also facing global overcapacity, particularly from rapid capacity expansion in China. This surplus of ethylene in Europe is depressing profitability and making European crackers less competitive.
In response to these challenges, companies are redirecting investments towards bio-refineries and chemical recycling projects. However, some recycling initiatives have been paused due to cost competitiveness. Firms such as Versalis (Eni’s petrochemicals arm) and ExxonMobil Chemical France have posted multi-hundred-million-euro losses, leading to plant closures.
The impact of these closures on the European petrochemicals industry is significant. Up to 40% of EU ethylene capacity is at risk or being closed, leading to potential shortages or increased imports. This increased reliance on imported base chemicals could affect supply chain security and cost structures.
The closure of these facilities could also lead to job losses, with joint EU statements warning that up to 50,000 jobs could be lost if closures continue through 2035.
As the industry restructures, companies are shifting focus towards sustainable chemical production and recycling, signalling a transformation away from traditional petrochemicals. However, this transition could lead to potential gaps and volatility in supply for downstream industries such as plastics, pharmaceuticals, and manufacturing.
Politicians in the UK and EU are beginning to realize that domestic production needs some support. Ineos is one company bucking the trend, building a new ethylene cracker in Europe, called Project One, which will process imported US ethane and have a carbon footprint half that of a typical European naphtha cracker.
In conclusion, economic unviability driven by high costs and global competition is forcing widespread steam cracker closures in Europe, causing a significant contraction and reshaping of the regional petrochemical industry towards import reliance and sustainable alternatives.
- The financial challenges within the European petrochemicals industry are evident, as several steam crackers are being closed due to higher natural gas prices and global overcapacity, particularly from rapid capacity expansion in China.
- In an attempt to navigate these difficulties, companies are investing in bio-refineries and chemical recycling projects, but some initiatives have been temporarily halted due to cost considerations.
- The anticipated economic impact of these closures is significant, potentially leading to ethylene shortages or increased imports, which could affect supply chain security and cost structures within various downstream industries such as plastics, pharmaceuticals, and manufacturing.
- Moreover, the closures could result in job losses on a massive scale, with estimates suggesting up to 50,000 jobs could be lost by 2035, highlighting the potential impact on the general-news landscape and the necessity for government intervention to support domestic production.
