The bells aren't just ringing for Europe's petrochemical industry

High energy prices, which will become even higher after the inevitable removal of subsidies, represent the death sentence of the petrochemical industry in Europe.

"The last time European petrochemical plants processed so little of their preferred raw material, Sweden's ABBA was the most popular band on the continent and the Fall of Saigon marked the end of the Vietnam War," energy market analyst Javier Blas recently wrote at Bloomberg.

The preferred raw material Blas is talking about is naphtha, a by-product of oil refining and a basic component in the petrochemical industry.

According to the data of the International Energy Agency taken by Bloomberg, the consumption of naphtha in Europe will reach a minimum of the last 48 years in 2023, of about 34 million tons (see graph 1).

This level is almost 20% lower than the one recorded before the outbreak of the Covid-19 pandemic and almost 40% below the historical maximum reached about 20 years ago.

On the other hand, the consumption of paints, resins, plastics and other petrochemical products continues to grow in Europe based on increasing imports. And as the imports usually come from refineries and chemical plants on other continents, there is also a pollution "bonus", represented by the emissions of the ships that transport them.

The Bloomberg analyst points out that "in Europe, natural gas is about five times more expensive than in the United States", and currently "it is cheaper to buy ethylene, a basic element for the manufacture of plastics, from Texas and transport it across the Atlantic than to produce it in Europe".

Under these conditions, the activity of the petrochemical sector in Europe is experiencing sharp declines and has led to a serious deterioration of the trade balance in the chemicals segment, which is likely to register a deficit in 2023, after a collapse of the surplus by more than 93% in 2022 (see chart 2 ), and the outlook is considered gloomy for 2024.

The massive reduction of processing activity in petrochemical plants leads to the accelerated accumulation of losses, against the backdrop of extraordinarily high fixed costs. Javier Blas points out that "steam cracking facilities must be operated as close to capacity as possible throughout the year", and "any value below 90% is cause for concern, below 85% is bad and below 80% is catastrophic".

For several quarters, the degree of utilization of cracking capacities has dropped significantly below the "catastrophic" level, oscillating between 65% and 75%, according to data presented by Bloomberg.

Under these conditions, "it is increasingly difficult to see how the petrochemical industry on the continent can regain its previous strength", as shown in a recent press release from the International Energy Agency, taken by Bloomberg.

After the discussions with the executive directors of the European petrochemical sector, Javier Blas states that their opinion regarding the recovery of the strength of the petrochemical sector in Europe is "it will not happen - period".

"Industry executives say they can only lose money for a limited period of time, so shutdowns look certain in 2024," the Bloomberg analyst added.

In order to cope with an energy context that has not been "hostile" for some time, but has become downright "impossible", the petrochemical companies in Europe have chosen the path of "begonia".

Blas points out that, at the last presentation of the financial situation to investors, BASF executives did not mention anything about the country of origin, but presented the prospects of the new petrochemical complex that is being built in Zhanjiang, China, following an investment of about 10 billion dollars . More than 15,000 workers are on site every day, and construction activity has intensified recently, according to presentations available on the company's website.

The Bloomberg analyst also mentions that investments in new projects in Asia by European chemical companies have increased by about 50% in the last 15 years, according to the estimates of the investment bank Jefferies Financial Group.

However, "if the European decision-makers are worried, they hide it well", because "there is no sign of alarm in Brussels, Berlin, Madrid or London", as Blas writes.

I'm wodering why? Are European leaders too dull to understand what is going on? Are there other reasons, involving the liquidation of Europe's industrial base in the shortest possible time?

If the answer is affirmative, then why are there still speeches about reducing dependence on China or other "unfriendly" countries and about "de-risking"?

There is, then, a bitter irony behind the destruction, with or without premeditation, of the petrochemical industry in Europe.

"At the moment, many European nations are trying to save the offshore wind industry, but what about the petrochemical companies that produce the resins and plastics used to manufacture the pallets?" emphasizes Javier Blas, who also writes that "Europe has also lost other industries in favor of Asia" and recalls that "steel, textiles and shipbuilding moved to the east".

The bells are not only ringing for the petrochemical industry in Europe, they are ringing for all Europeans who will be mercilessly sacrificed, and not just from the point of view of jobs, in the name of destructive ideologies for which historical antecedents are very rare.