Cracker closures: facing the inevitable

How can European producers successfully compete?

The announcement of cracker closures by two major European chemicals producers, ExxonMobil and Sabic, in April 2024 brought into sharp relief the impact of overcapacity on the European chemical industry.

The huge ramp up in ethylene and derivative capacity in recent years has depressed cracker margins and operating rates, especially in high-cost regions such as Europe. As new capacity continues to come onstream, first in China and then the Middle East, what steps can European producers take to remain competitive?

How has overcapacity impacted European production?

In the face of high energy prices, European production margins have come under increasing pressure. Europe’s cracker fleet is high up on the ethylene cost curve, which measures fixed and variable costs per tonne of ethylene production.

The average spot ethylene variable margin in Europe for naphtha cracking in 2023 was only $98/tonne. This is a drop of over 80%, compared with the average of $580/tonne between 2015-2021.

European chemical industry operating rates fell to an unsustainable 57% in March 2024, according to data from ICIS chief economist Kevin Swift, down from a global average of 77% from 1997-2022.

Europe’s ageing cracker fleet and high production costs make it particularly vulnerable to further closures. There have been no new crackers built in Europe for 30 years and while most of these are integrated upstream to refineries, many are small and high cost compared to newer sites, especially in the US, Middle East and China. The average age of crackers in Europe, at close to 45 years, is over twice that in the Middle East, and three times the figure for China.

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Overcapacity expected to worsen

Waves of new petrochemicals capacity have been added since 2020, with more forecast to come to the market until 2028. China is in the midst of a huge expansion in capacity, as years of government and private investment to stimulate manufacturing and export growth come to fruition.

But its economy is unable to sustain previous high rates of growth, and this is contributing to the global overcapacity problem.

Crude oil to chemicals will make matters worse

Overcapacity is likely to worsen as a new wave of crude oil to chemicals (COTC) projects come onstream later in the decade. As vehicle electrification reduces demand for transport fuels, Middle East integrated oil players such as Saudi Aramco plan to convert more of their crude oil reserves into chemicals. The company is developing technology that will allow conversion of potentially 70-80% crude oil to chemicals.

New COTC projects could add significant chemicals capacity. Saudi Aramco announced in 2022 that it intends to expand its liquids-to-chemicals capacity to up to 4m barrels/day by 2030. This is the equivalent of 199 million tonnes/year.

How can Europe adapt for a successful future?

The closure of ExxonMobil and Sabic’s plants in France and the Netherlands respectively, would remove around 1 million tonnes/year of ethylene capacity from the market. But up to 20 million tonnes/year may need to shut down to keep operating rates at a healthy level, if planned projects go ahead, according to analysis from the ICIS Supply & Demand database.

Nevertheless, Europe can capitalise on its position as a leader in sustainability to pivot towards more sought-after products. Some European chemical companies are moving towards more specialised or low carbon-intensity chemical production to safeguard their businesses. BASF, Sabic and Linde launched what they claim is the world’s first demonstration-scale plant for electrically heated steam cracking in Germany in April 2024.

Others - such as INEOS’ 1.45m tonne/year ‘Project One’ cracker, which it claims will be Europe's most sustainable ethane cracker - are also capturing the US ethane feedstock advantage by importing feedstocks.

If chemicals business models evolve towards a more local, circular approach, Europe’s smaller facilities might actually have an advantage.

ICIS subscribers can visit the ICIS Overcapacity topic page for further insight, or find a detailed list of global plant closures, current and planned here.

Conclusion

With increasing fears of Chinese exports undermining the industrial base in Europe and other regions, anti-dumping investigations against China are growing in frequency. Ongoing EU investigations include titanium dioxide (TiO2), polyethylene terephthalate (PET) and polyvinyl alcohols.

This may provide temporary respite, but overcapacity is set to continue for the rest of the decade, and European producers must find a way to compete. As European value chains seek to lower their emissions, producers in the region can capitalise on their local advantage and focus on more sustainable production methods as a way of meeting customer demand for the longer term.

Authors:

Will Beacham has been writing about chemical industry news and trends for over 20 years, in a variety of editorial roles at ICIS. He also hosts the ICIS Think Tank podcast.

Corinne de Berry is a Senior Copywriter at ICIS, working across sustainability, chemicals and energy. Her interests span decarbonisation/net zero, recycling and the energy transition.