The European chemical industry is grappling with a severe competitive disadvantage, as it has not seen new crackers built in three decades. Many existing European steam crackers are small and high-cost compared to newer, more efficient units in the United States and Middle East. This situation has left European producers struggling with higher energy and feedstock costs, particularly after losing access to cheap Russian pipeline gas in 2022, forcing reliance on more expensive liquefied natural gas.
The stark reality of this competitive disadvantage is evident in the average spot ethylene variable margin for naphtha cracking in Europe. According to ICIS Margin Analytics, this margin plummeted to $98 per metric ton in 2023, a dramatic drop from the average of $580 per metric ton from 2015-2021. This significant margin compression underscores the challenging environment European producers are navigating.
The industry's struggles have led to a wave of restructuring and potential closures. ExxonMobil and SABIC have announced plans to close two European steam crackers, signaling the beginning of what may be a series of shutdowns needed to balance global supply and demand in the chemical market. This trend is driven by the addition of new petrochemical capacities since 2020, with more projected to come online by 2028. The tough market conditions have also prompted corporate restructuring and asset sales, with major players like BASF, Shell, and LyondellBasell announcing significant changes to their operations.
In response to these challenges, some European chemical companies are pivoting towards more specialized or low carbon intensity chemical production. INEOS, for instance, is leveraging the US ethane feedstock advantage by importing feedstocks for its Project One cracker. Meanwhile, BASF, Sabic, and Linde have inaugurated a demonstration-scale plant for electrically heated steam cracking, aiming to reduce carbon emissions. This shift towards greener and more specialized production could potentially offer a competitive edge for Europe's smaller facilities.
Looking ahead, the European chemical industry must navigate a complex landscape of high costs, regulatory pressures, and shifting demand patterns. The transition towards more sustainable chemicals is a critical factor, driven by both regulatory requirements and changing consumer preferences. For example, Unilever's commitment to using at least 25% recycled plastics for its packaging by 2025 will reduce demand for fossil-fuel-based plastics while increasing demand for sustainable alternatives. Similarly, the European Union's Packaging and Packaging Waste Regulation, which requires 55% of plastics to be recyclable by 2030, will further drive this shift.
The Antwerp Declaration, presented to European Commission President Ursula von der Leyen and Belgian Prime Minister Alexander De Croo, underscores the critical need for strategic actions to restore competitiveness in Europe's chemical industry while supporting employment and sustainability goals. The declaration calls for an Industrial Deal that aligns with the Green Deal, emphasizing the necessity of robust, locally produced raw materials and clean energy infrastructure to sustain and grow key sectors like chemicals, steel, and cement.
Amidst these challenges and shifts, European chemical producers must focus on cost-effectiveness and scalability in sustainable production to thrive in the evolving market. Investments in new technologies and partnerships with technology startups will be crucial for developing viable sustainable feedstocks and products. Achieving a low-cost position in these new markets could lead to higher margins and reduced volatility, providing a path to sustained profitability despite the broader industry challenges. As the industry navigates this transition, balancing capacity reductions with the integration of new, more efficient technologies and business models will be crucial for maintaining competitiveness in the global market landscape.
