Report confirms European petrochemicals' competitive disadvantage
It is most probably due to the competitive disadvantage they are confronted with. According to a Eurozone economic outlook report, global economic activity is expected to improve despite political uncertainty and inflation. This is reflected in the overall European chemical industry’s economic results. Output in many chemical sectors increased during the first two months of 2017 compared to the same period last year. However, the European petrochemical industry saw a decrease by 1.5% of its output. The trade balance for petrochemicals improved slightly during this period, but it is mainly due to a strong decline in imports and not an increase in exports.
As an energy-intensive industry, oil and gas as feedstock and energy account for more than 80% of the petrochemical industry’s production costs. Energy prices in Europe are considerably higher in Europe than in the rest of the world, which constitutes a competitive disadvantage. Despite lower oil prices, European producers are currently still paying twice as much as their American counterparts. The industry is also plagued by high regulatory costs which have almost doubled within a decade as the European Commission’s Cumulative Cost Assessment Report shows. Since it is a commodity business, petrochemicals are highly exposed to international competition and the industry cannot pass on costs to customers. Over the last few years, almost every investment in new petrochemical plants went to regions outside Europe, especially to the US thanks to cheap shale gas and the Middle East. In contrast, the last steam cracker in Europe was built around 20 years ago – a proven case of “investment leakage”.
With over 50 steam crackers operating in the EU, petrochemicals account for approximately 27% of the total European chemical industry’s sales and are, hence, a very important industry segment as well as the starting point of almost all value chains. In fact, 95% of all manufactured goods are based on petrochemicals, for example smartphones, windmill blades or solar panels. Petrochemicals provide a secure raw material basis to all the subsequent segments and enable downstream users to innovate in sustainable technologies like renewable energy devices. EU decision-makers should endeavor to create the economic framework conditions that allow the industry to thrive, all the more so that petrochemicals have a major role to play in achieving Europe’s sustainability and low-carbon goals.
For further information, please read Cefic’s article and chemical trends’ report.