A. BANERJEE, Stratas Advisors, Houston, Texas (U.S.); and S. HUSSAIN, Stratas Advisors, Delhi, India
Europe’s steam cracking base is being reshaped. Between historic mothballing and a wave of 2024–2027 shutdowns, nearly 5.7 million metric tons per year (MMtpy) of nameplate capacity was shuttered or scheduled for shutdown, concentrated in a front-loaded 2024–2026 tranche. This wave of closures will raise Europe’s reliance on imports to satisfy domestic ethylene for its polyethylene (PE) needs, as PE demand holds broadly steady. PE producers must either secure ethylene for future needs or reposition towards low-carbon niches like recycling or by adding units which can process renewable feedstocks for manufacturing polymers.
Likewise, policymakers face a trade-off between industrial security and climate integrity. Maintaining carbon ambitions under the European Union’s (EU’s) Emission Trading System (ETS) and rolling out the Carbon Border Adjustments Mechanism (CBAM) must be paired with time-limited, targeted interventions that reduce genuine risk of unnecessary de-industrialization. The key factors driving recent and upcoming rationalization in Europe are outlined below and discussed in the following sections:
An enduring feedstock handicap: naphtha-heavy crackers vs. comparatively cheaper-to-operate ethane/propane gas crackers in the U.S. and Middle East
Much higher energy and industrial power bills
Active carbon pricing of industrial emissions under the EU’s ETS
Growing domestic demand for circular/bio-based alternatives driven by policy support
Growing ethylene capacity in low-cost regions such as China.
Before turning to the drivers of rationalization, it is useful to examine how Europe’s PE supply and demand balance has evolved in recent years, and how an increasing share of recycling and renewable supplies is reshaping the industry.
PE demand in Europe (2019–2025). PE demand in Europe is concentrated in a few end-use segments, with packaging the dominant segment, followed by construction, agriculture, consumer/industrial goods and automotive applications. Packaging alone accounts for roughly 40% of overall plastics demand in Europe and represents the largest share of PE end-use. Total demand in Europe’s subregions has been essentially flat. PE demand in Northwest Europe (NWE) decreased from 13.2 MMtpy in 2019 to 13.1 MMtpy in 2022 but increased slightly to 13.3 MMtpy in 2025. The Mediterranean region stayed at 5.2 MMtpy from 2019–2022 and edged up to 5.4 MMtpy in 2025, an increase of approximately 3.8%. Therefore, combined PE demand in these regions rose from 18.4 MMtpy in 2019 to 18.7 MMtpy in 2025, an increase of only 1.6% (FIG. 1).
PE supply in Europe (2019–2025). Historically, the contraction in PE supply across Europe’s subregions has been closely linked to steam cracker rationalization rather than reflecting a standalone decision to exit the polymers market. PE unit closures in Gravenchon, France (2025), Wilton, England (2020) and Brindisi, Italy (2025) were followed by ethylene cracker closures; these losses reflect a significant share of European PE capacity that is integrated with ethylene production.
In NWE, total PE supply declined from 12.7 MMtpy in 2019 to 11.1 MMtpy in 2025 (−12.6%), while Mediterranean supply fell from 4.1 MMtpy to 3.5 MMtpy (−14.6%) within the same timeframe (FIG. 2).
Between 2019 and 2025, market share of PE production via recycled and renewable feedstock grew from 16.1% to 23.3%; however, this improvement was achieved by a modest rise in recycled volumes (2.7 MMtpy to 3.4 MMtpy) and a sharp fall in fossil supplies from 14.1 MMtpy to 11.2 MMtpy (FIG. 3). This data shows that Europe is making progress on circular supply in absolute terms, but the percentage gains are amplified by shrinking fossil throughput, as the total PE supply fell by 2.2 MMtpy between 2019 and 2025.
EU steam cracker closures. From 2020 through the planned actions into 2027, Europe is set to lose nearly 5.7 MMtpy of steam cracker nameplate capacity (FIG. 4), with the bulk of capacity (3.3 MMtpy) concentrated in the 2024–2026 wave of closures. Historic mothballing (Wilton, England and Porto Marghera, Italy) started the trend, but a larger tranche of removals and long idles took place or were announced in 2024–2025, with another meaningful chunk still scheduled for 2026–2027. The front-loaded removal profile materially shrinks Europe’s merchant naphtha cracker supply and underpins the structural reshaping of regional olefins markets.
Among the closures, INEOS is planning to build an ethane cracker under its Project ONE initiative, which uses advanced technologies to significantly lower environmental impact by optimizing energy efficiency, using hydrogen (H2) as fuel, incorporating carbon capture readiness and sourcing renewable electricity, aiming for a much smaller carbon footprint than older European crackers.
Drivers behind the capacity rationalization. The following drivers are leading to European ethylene cracker rationalization:
Feedstock costs: Feedstock is the single largest cost component in steam cracking and the primary structural driver of regional competitiveness. Europe’s cracker system is structurally disadvantaged because it remains overwhelmingly naphtha-based, whereas the U.S. and the Middle East operate with feed slates dominated by ethane and liquified petroleum gas (LPG) that typically sit lower on the cost curve. Europe’s steam cracker feed mix is 77% naphtha, with only 9% ethane and 4% butane (the balance is split across propane, gasoil and other feeds). In contrast, the U.S. is primarily ethane (49%) and propane (21%), and the Middle East is similarly gas-leaning with ethane (56%) and propane (23%). China remains predominantly naphtha-based (81%), but diversification is underway: ethane is still small (3%) yet rising due to cost advantages, while LPG/propane remains material (10%). Overall, the higher share of ethane/LPG in the U.S. and Middle East embeds a durable feedstock cost advantage relative to Europe’s heavy naphtha base.
The difference in feedstock shares matters economically because ethane/propane (shale gas/LPG-derived) feedstocks are typically far cheaper than naphtha. In 2025, ethane prices in NWE and U.S. Mont Belvieu averaged $309.30/t and $126/t, respectively, whereas naphtha prices averaged $557.60/t and $583.10/t in NWE and PADD3 (U.S. Gulf Coast), respectively (FIG. 5). Since the U.S. and the Middle East are the world’s largest natural gas producers, those regions enjoy cheaper ethane feedstock for their crackers, whereas European crackers are older and use much more expensive naphtha.
China’s steam cracking industry, despite having naphtha as a significant feedstock to the steam crackers, is better placed than Europe due to:
Cheaper industrial electricity prices and no binding carbon costs like the EU’s ETS and/or CBAM
Higher domestic and regional demand and utilization
Larger, more efficient greenfield and refinery-integrated crackers.
Operating costs.
Energy and electricity. Energy is the most important non-feedstock cost for steam crackers, and 2024 regional pricing underscores Europe’s structural disadvantage. Using the 2024 average energy prices in TABLE 1 and typical process intensities, one can quantify the two cost lines that matter most: thermal fuel (specific thermal energy consumption × natural gas price) and purchased electricity (specific electricity consumption × electricity price). Even before considering feedstock, energy alone creates a clear competitiveness gap. TABLE 1 shows that Europe’s natural gas price [$11/gigajoule (GJ)] and industrial power price [$0.20/kilowatt hour (kWh)] are materially higher than competing regions: China is $9.50/GJ and $0.082/kWh; the U.S. is $2.50/GJ and $0.08/kWh; and the Middle East is $1.70/GJ and $0.061/kWh. Applying typical cracker intensities-naphtha crackers are 20.1 GJ/t of ethylene, ethane crackers are 13.7 GJ/t and electricity is 500 kWh/t. The implication is straightforward: an EU naphtha cracker faces an energy cost of roughly $321/t of ethylene compared with approximately $114/t in the U.S., $233/t in China and $65/t in the Middle East. Even if the EU could run ethane instead of naphtha, energy costs remain elevated: about $251/t in Europe vs. $98/t in the U.S., $172/t in China and $54/t in the Middle East. Two factors explain most of Europe’s disadvantage: thermal fuel and industrial electricity. At $11/GJ, European gas drives roughly $221/t of thermal cost for a naphtha cracker vs. about $50/t in the U.S. and ~$34/t in the Middle East. Regarding power, Europe’s $0.20/kWh power price adds ~$100/t (500 kWh × $0.20), making electricity a large and often underestimated line item—around 31% of the EU’s naphtha energy bill and an even larger share for lower-thermal-intensity ethane crackers. The result is that Europe enters the cost curve with a persistent energy penalty relative to the U.S. and the Middle East and remains disadvantaged vs. China, as well.
Carbon costs. The EU ETS is the largest driver of direct carbon costs for European steam crackers. It is an explicit compliance cost that is largely absent in competing regions. Unlike energy or feedstock, it is policy-driven and increases with both emissions intensity and the EU allowance (EUA) price. Using an EUA price of $70/t of carbon dioxide (CO2) and the EU steam cracker benchmark of 0.681 t of CO2/t of ethylene (2021–2025), a naphtha cracker with a carbon intensity of 1.5 t of CO2/t of ethylene faces an implied direct ETS burden of $57/t of ethylene. For an ethane cracker at 1.2 t of CO2/t of ethylene, the implied burden is $36/t of ethylene. In other words, the benchmark reduces but does not eliminate exposure, it shields 0.681 t of CO2/t of ethylene, leaving residual emissions priced at the allowance price. Conversely, most non-EU jurisdictions carried no comparable national ETS cost in 2024 (e.g., U.S., excluding California, and the Middle East) or had more limited scope for petrochemicals (China).
Global oversupply. Between 2022 and 2025, net ethylene capacity additions were moderate due to several closures in Europe. Between 2025 and 2030, the ethylene market shifts from a modest surplus to a meaningful structural oversupply, and the numbers explain why operators in Europe are planning to close or convert additional assets. In 2025, global nameplate ethylene capacity stood at 252 MMtpy, with a utilization rate of 82.2%. By 2030, ethylene capacity is expected to rise to 303 MMtpy, with the utilization rate expected to fall to 80.2% (FIG. 6). Falling utilization rates globally, with increasing capacity, puts less competitive assets—such as those in Europe—at a higher risk of closing.
Regionally, oversupply is driven entirely outside Europe: China alone contributes one-third of the world's ethylene capacity additions (17.8 MMtpy) between 2025 and 2030, while the rest of the world (excluding the EU) will add 35.1 MMtpy of additional capacity. NWE and the Mediterranean each will contract slightly (–500,000 tpy). Therefore, most incremental supply is being built in low-cost regions like China. Europe’s naphtha-based crackers will struggle to compete economically, which depresses utilization and puts downward pressure on margins for NWE and Mediterranean producers—a clear, quantitative justification for the upcoming closures, mothballing and conversion activity in Europe.
Shift towards circular plastics and renewables. European demand for conventional (fossil-based) petrochemicals is demonstrably shrinking as buyers, regulators and producers shift volumes toward recycled and bio-based alternatives. Fossil-based plastics output in the EU has fallen sharply (by about 18.9% since 2018), while the share of circular plastics (bio-based and post-consumer recycled plastics) reached 15.4% of EU production in 2024, indicating that recycled/alternative streams are taking a growing share of what the market buys. Total demand for fossil plastics stood at 51.1 MMtpy in 2019, which shrank to 43.3 MMtpy in 2024. Conversely, renewable and bioplastic capacity is expanding rapidly (global bioplastic capacity is forecast to grow from 2.5 MMtpy in 2024 to 5.7 MMtpy by 2029), underscoring that product mix growth in Europe is increasingly in circular and bio-based segments rather than conventional virgin polymers.
Implications of capacity rationalization on future supply and demand dynamics. Europe’s steam cracker capacity stood at 24.9 MMtpy in 2025. Four announced/planned closures will remove 2.4 MMtpy, but the startup of INEOS’s Antwerp ethane cracker in 2027 will add 1.4 MMtpy, offsetting much of that loss. The net effect is a modest contraction of 1 MMtpy by 2030, with both NWE and the Mediterranean facing a deficit of 500,000 tpy each. These capacity changes have been announced, and further announcements of closures by 2030 can be expected given the competitive disadvantages.
Between 2025 and 2030, PE demand across Europe remains broadly stable, with total consumption in NWE and the Mediterranean increasing only marginally from 18.7 MMtpy in 2025 to 18.8 MMtpy by 2030. In NWE, ethylene demand is effectively flat at around 13.3 MMtpy over the forecast period, while Mediterranean demand edges up modestly by 100,000 tpy to 5.5 MMtpy, reflecting limited underlying growth in mature end-use markets.
On the supply side, the picture is more dynamic. After reaching a trough of 14.6 MMtpy in 2025, European PE supply recovers modestly to around 15.1 MMtpy by 2030. This partial rebound is led by NWE, where supply rises from 11.1 MMtpy in 2025 to 11.7 MMtpy in 2030. In contrast, Mediterranean supply continues to soften, edging down from 3.5 MMtpy in 2025 to 3.4 MMtpy by 2030 (FIG. 7). The increase in overall supply is driven primarily by incremental additions in recycled and renewable PE capacity and by higher utilization of remaining integrated assets, rather than a return of large-scale fossil-based expansions.
Between 2025 and 2030, Europe’s PE supply rises modestly from about 14.6 MMtpy to 15.1 MMtpy, but that increase is driven almost entirely by recycled and renewable volumes rather than a recovery in fossil feedstocks. Assuming the current mix of recycled plastics and the EU achieving an overall 30% recycling rate across all plastics, the fossil supply of PE falls by roughly 500,000 tpy (– 4.3%), while recycled and renewable output expands by roughly 1 MMtpy (+ 29.5%). In summary, the net gain of 500,000 tpy results from deepening circular supply replacing lost fossil tonnage, not a return to previous naphtha-based production levels.
What the closures mean to various stakeholders. For producers, Europe is expected to remain structurally short of PE even as circular volumes increase (FIG. 8). For producers, this means demand for virgin PE will not disappear; however, the more critical issue is the contraction of domestic ethylene supply following steam cracker closures. As upstream capacity continues to rationalize, PE producers will increasingly face constraints in securing local ethylene feedstock, forcing them to rely more heavily on imports to balance their operations.
Areas producers should target:
Steam cracker facilities should conduct rapid portfolio assessments to identify assets that can justify reinvestment through integration, feedstock flexibility and electrification vs. those better suited for conversion or closure. INEOS’s Project ONE is an example of a greenfield, ethane-fed, fully integrated cracker that delivers a step-change in unit economics and a materially lower carbon intensity than legacy naphtha units by utilizing renewable electricity and H2.
Polyolefin producers should focus on securing ethylene offtake agreements or reposition capital toward chemical recycling, biorefining or speciality downstream units where carbon and energy costs can be better absorbed.
Accelerated deployment of short-term decarbonization levers is critical for reducing emissions while longer-term solutions mature. This includes power generation optimization to reduce energy losses and fuel intensity, targeted furnace electrification pilots where grid availability and costs allow, and H2-ready retrofits that future-proof assets without requiring immediate full H2 supply. These near-term actions can deliver measurable emissions reductions and operating cost benefits, while preserving optionality for deeper abatement pathways—such as carbon capture, utilization and storage (CCUS) and green H2—as technologies, infrastructure and policy support become clearer and more mature.
Implications for downstream stakeholders and investors. Steam cracker closures will raise reliance on imported ethylene. More than 38% of the EU 27’s ethylene imports come from outside the bloc, which increases supply volatility and prices for producers and traders. Lower domestic cracker output also reduces demand for naphtha, creating a surplus that refiners must sell into competitive international markets. At the same time, capital markets are starting to favor assets that fit Europe’s low-carbon transition and penalize those with high carbon and energy exposure.
Areas stakeholders should target:
Long-term offtake agreements tied to recycled or low-carbon feedstocks to anchor conversion projects.
To tackle falling reliance on naphtha, refiners must secure domestic and international offtake agreements while also maintaining flexibility in blending and upgrading within the facility.
Stress-testing investments against sustained high EUA prices and global oversupply scenarios rather than assuming reversion to historical margins.
Engagement with policymakers on CBAM design to ensure downstream products are not indirectly penalized by upstream exclusions.
Implications for governments and policymakers. From a policy perspective, closures signal the rising risks of carbon leakage, import dependence and supply-chain fragility for critical chemical building blocks. EU ETS costs are imposed on domestic producers while CBAM currently excludes basic chemicals, leaving European crackers exposed to imports from regions with lower energy costs and no comparable carbon pricing.
What governments could do:
Urgent inclusion of basic chemicals and key polymers under CBAM: including basic chemicals and key polymers under CBAM levels the playing field by pricing the carbon content of imports, protecting EU producers from being undercut by higher-emissions, lower-cost supply.
Targeted, temporary competitiveness support for strategic clusters (industrial electricity relief, PPA facilitation, accelerated permitting) conditional on decarbonization commitments.
Coordinated investments in infrastructure for feedstock diversification (LPG/ethane imports, hydrogen networks) and shared decarbonization hubs (CCUS, electrified steam).
Takeaway. Looking ahead, this analysis indicates that Europe is moving toward a smaller and structurally different petrochemical base. Commodity naphtha cracking will continue to contract, while growth concentrates in gas-based regions (U.S., the Middle East) and increasingly in China. Within Europe, survival and reinvestment will depend on policy alignment, access to competitive energy and the ability to pivot toward circular and low-carbon value chains. Without timely countermeasures, including CBAM expansion and targeted transition support, further closures are likely—not because demand disappears, but because production shifts elsewhere, undermining both industrial competitiveness and climate objectives. HP
Aditya Banerjee has more than 15 yrs of experience in the downstream sector. His consultancy background covers the Americas and global refining and chemicals markets, specializing in economic and fundamental analysis, including forecasting for refining and petrochemical markets. Before joining Stratas Advisors, Banerjee served as a Senior Associate at Sapient Consulting and as a Research Analyst at Wood Mackenzie. In these roles, he developed expertise in data analytics, particularly focusing on the refinery supply chain, encompassing supply and demand balances. Commencing his career in 2007 as a Process Engineering Intern at Reliance Industries Ltd. in Jamnagar, India, he subsequently worked within the Larsen and Toubro Research and Development department in Mumbai, India. Banerjee earned a BS degree in chemical engineering from the Institute of Chemical Technology in Mumbai, India, and an MS degree in environmental analysis from Rice University.
Based near Delhi, India, Sarfaraz Hussein plays a key role in providing essential support to Stratas’s downstream services. His focus is on refining, petrochemicals and H2. Prior to joining Stratas, Hussein worked at cCarbon.info, where he specialized in conducting comprehensive market analyses and providing insights into clean fuel programs across North America, including RFS and LCFS. He also gained experience as a summer intern at ONGC. He earned a Bch degree in chemical engineering from MBM Engineering College, and an MS degree in chemical engineering from the Indian Institute of Technology Kharagpur.