Petrochemicals giant Sabic is to close its olefins cracker in Teesside, UK. The plant has been offline since 2020 and was in the process of being converted to run on ethane from the US, a cheaper feedstock than oil-derived naphtha. Meanwhile, Dow Chemical has confirmed it will shut down its cracker in Böhlen, Germany, by the end of 2027, along with two other European basic chemical plants.

Crackers use high temperatures and steam to produce alkenes – mostly ethylene and propylene – from larger hydrocarbons in naphtha or other feedstocks. Mostly this feeds into commodity plastics like polyethylene and polypropylene, with a smaller amount going into other chemicals.

But steam crackers in Europe are in a precarious position, with at least 10 sites either closed or scheduled to be shut down between 2022 and 2027. Meanwhile, LyondellBasell is negotiating with investment firm Aequita to sell four olefin and polyolefin plants in Europe. ‘Getting out my calculator, we’ve got 2.3 million tonnes of ethylene capacity for sale and we’ve had 3.4 million tonnes of closures or announced closures [for Europe],’ says Olivia Steele, olefins research analyst at Wood Mackenzie. That represents over a fifth of existing capacity in the region. The refineries that provide naphtha feedstock are also struggling, with Prax Group – operator of the UK’s Lindsey refinery – going into receivership in early July.

Petrochemicals Europe has warned that European chemical producers are operating at a substantial cost disadvantage, with natural gas prices four to five times higher than in the US in 2024. Cracking is energy intensive, and uses lots of gas to provide heat. ‘The cost differential between Europe and the rest of the world has widened as a result of higher energy costs,’ says Sebastian Bray, head of chemicals research at investment bank Berenberg.

European steam crackers also tend to be older and run on naphtha from oil, whereas newer, more competitive crackers may offer the flexibility to run on cheaper US ethane. Newer facilities in China and elsewhere are often larger, allowing them to achieve greater economies of scale and more favourable cost profiles. ‘Age is often a proxy for scale and competitive position, because the newer crackers are getting bigger and bigger,’ says Alan Gelder, market analyst at Wood Mackenzie. The newest ethylene installation in Europe is 25 years old.

Capacity buildup

There has been a global buildup of ethylene production in the Middle East, North America and Asia. China, once a major importer of commodity chemicals, has been striving to become more self-sufficient. Korea, Japan, southeast Asia, the US and the Middle East were all big ethylene derivative exporters to China, but are seeing lower exports now, says Dhanish Kalayarasu at market intelligence firm Argus Media. ‘We have about 50 million tonnes of new ethylene capacity coming online between 2020 and 2028, with a lot of new capacity in China, and that’s putting pressure on older European and Asian assets,’ says Steele.

Further chemical capacity under construction in China and the Middle East may put even more pressure on older plants in Europe and elsewhere. ‘China is committed to developing its chemical industry and the government has made capital available to companies, supporting them as they grow and achieve dominance,’ says Bray.

The situation has transformed relatively quickly. ‘[Olefin] capacity was quite stable, and then at the start of 2020 it started to increase quite significantly,’ says Valeria Sterpos, partner at management consultancy Bain & Company. ‘Capacity build-up was higher and faster than the demand increase.’ Just as ethylene production surged, the world economy has slowed, so demand for products that use a lot of plastics in either production or packaging – like cars, electronics and appliances – has not grown at expected rates. Trade disputes and tariffs between China and the US are expected to further suppress demand growth. Sterpos estimates that 10% of ethylene and propylene capacity will need to shut down to restore good economic returns for the remaining plants.

Against the grain

Ineos is the only firm building a new ethylene cracker in Europe. Its Project One plant in Antwerp will process imported US ethane and have a carbon footprint half that of a typical European naphtha cracker, according to the company. ‘It is a test as to whether building a new chemical plant in Europe, using the best and most modern technology, can be made economic,’ says Bray. It is expected to come online in 2027, producing 1.5 million tonnes of ethylene per year, and putting more pressure on costlier local competitors.

In Italy, Eni subsidiary Versalis operates all three of the country’s crackers. While one already closed in 2022 and another in Brindisi is scheduled for closure in 2025. At Priolo in eastern Sicily, Versalis plans to convert a cracker into a biorefinery at a cost of around €800–900 million.

Without petrochemicals it is difficult to manufacture anything

In March, Versalis noted that the EU chemical industry is continuously losing market share. Versalis said it would refocus on high value products and speciality polymers, with the Priolo biorefinery planned to start up in 2028. ‘This sort of conversion is something [Versalis] has been quite successful at,’ says Gelder. ‘Typically, biorefinery sites give smaller throughputs, but higher margins and so are more valuable.’

If closures continue, Europe may end up importing more commodity chemicals and plastics from the Middle East, which has continued to diversify from oil production into petrochemicals. The European Commission acknowledges that chemicals is an enabling industry, playing a pivotal role in supporting Europe’s industrial competitiveness. ‘The plight of the chemical sector has not gone unnoticed in Europe, but politicians – in my view – generally see it as semi-strategic,’ says Bray: It is a good source of jobs and there may be a political case for support related to industrial autonomy, but concrete support for the sector only periodically makes it to the top of the political agenda.

Trade turbulence

Yet trade tensions around US tariffs are ramping up concerns around industrial supply chains. Politicians in the UK and EU are beginning to realise that domestic production needs some support, says Steele. Gelder warns that ‘the money involved is very, very large,’ and inflexible petrochemical plants can lose large sums of cash very quickly if conditions change, so direct financial support is unlikely from cash-strapped governments.

The trade situation with the US also puts the EU on the backfoot. ‘If you can’t be sure who your friends are, you need to maintain the capability to defend yourself, in which case you need a manufacturing base,’ says Gelder. ‘And without petrochemicals it is difficult to manufacture anything.’ Bray notes that the chemical industry has been unhappy with the degree of regulation it faces in Europe, but aside from alleviating that, ‘there’s not much Europe can do’.

China’s ethylene production is not immune to trade uncertainty. Its newer plants rely on ethane imported from the US and the Trump administration has restricted exports of the gas to China – currently the destination of around half of US ethane exports.

The capacity buildup for ethylene is predicted to end soon. ‘The chemicals sector is no stranger to over-investment. Whenever margins are good, people invest,’ says Kalayarasu. ‘We’ve been seeing some Chinese projects [coming online ahead of schedule], but this is the first year I’ve not been hearing much about new projects,’ says Kalayarasu.

‘This is a turbulent time in Europe. There’s going to be further rationalisation,’ says Steele. ‘But we think we will see a recovery in the 2030s, with demand picking back up.’ In the meantime, operators may need to decide if their European steam crackers can ride out the cost pressures or reorient towards cheaper feedstocks or higher value chemicals.