Reports of the European chemical industry’s demise are exaggerated – though the rebuild is real
- Natalia Ganowicz
- 2 hours ago
- 5 min read
Sustainable Chemicals Consultant Natalia Ganowicz considers the outlook for her sector in Europe amid a rapidly shifting energy landscape.
It’s no secret in my industry that in Europe, sustainable chemical production is under pressure. Since 2022, chemical plant closures have accounted for the loss of 37 million tonnes, or around nine percent, of European production capacity – a percentage that rises to 14% for petrochemicals. Naturally, this has serious implications for industry and jobs alike. But what is causing the situation, and what can be done to reinvigorate chemical production in Europe?
Energy issues
One simple explanation for the drop-off in European chemical production comes down to how our ways of generating energy are changing. Europe is the birthplace of the Industrial Revolution and, historically, its productivity and competitiveness in manufacturing were reliant on access to abundant and predictable fossil fuels. Entire industrial regions were designed around these stable supplies, with numerous products and markets dependent on their extraction. However, global competition for manufacturing and fuel – to say nothing of the wider move away from carbon towards green energy – have had dramatic effects on the European chemical market.
Indeed, it’s been something of a perfect storm. Deindustrialisation has dramatically affected some regions that had long-established infrastructure for energy sources like peat and coal. Renewables have grown considerably in Europe, providing almost half of the EU’s energy supply last year, though more investment is necessary to replace fossil fuels in earnest. Meanwhile, pressures on the chemical industry have increased following the energy crisis that has rumbled on globally since the COVID pandemic. Supply chains that were already stretched were further tested by Russia’s full-scale invasion of Ukraine in 2022, which disrupted European gas supplies and caused prices to rise dramatically.
Just as some stability looked to be returning, the US and Israel launched airstrikes against Iran, with the ensuing war causing massive disruptions to oil and gas prices as well as volatility in financial markets. The conflict has had a direct and tangible impact on conventional chemical manufacturing, with the bombardment of Qatar’s Ras Laffan Industrial City – a critical hub for global helium and LNG production – adding to the severe supply shocks. Nearly one-third of the world’s helium supply has been effectively wiped out or is stuck in the Strait of Hormuz, causing prices to surge by 70-100% in a matter of days. Various fertilisers, methanol, polyethylene, and countless other chemicals so crucial for agriculture, healthcare, energy, and many other sectors have been directly affected. It remains to be seen just how this situation will pan out; at the time of writing, I can only hope for a swift end to the war.
Real-life consequences
So, it’s safe to say that amid energy uncertainty on one side and EU legislation around sustainability on the other, the chemicals industry on the continent is in a tough spot at the moment. I’ve heard of more than a few businesses actively looking to move somewhere else – for example, China, or Brazil – in order to scale effectively. Industrial capital, after all, responds rationally to structural change; investment typically flows towards environments where industrial systems can operate predictably.
For many investors, that might mean, for example, Asia rather than Europe – one notable instance being BASF’s €10 billion Verbund investment in Zhanjiang, which is currently under construction. However, while traditional petrochemical expansion is increasingly occurring outside Europe, the continent is simultaneously building new forms of industrial chemical production based on renewable feedstocks and circular systems. Examples include UPM’s commercial biorefinery in Leuna, Germany, as well as Avantium’s efforts to commission the first commercial plant producing FDCA, a fully bio-based alternative to PET plastics, in the Netherlands. Ecoplanta, Enerkem’s Spanish facility converting non-recyclable waste into renewable chemical feedstock, is another exciting project that I’ll be watching with interest.
Infrastructure concerns
Despite the surge in green energy in recent years, though, the infrastructure needed to scale production compared to what is possible with petrochemical manufacturing has not yet been sufficiently developed. This ‘green premium’ is distributed across the value chain, often leading to higher prices; even though many consumers are increasingly willing to pay a premium for sustainable products, keeping costs to a minimum remains challenging.
Bio-based plastics, for instance, can cost around 30% more than conventional ones under current market conditions, and prices can be even higher for materials in early deployment phases. An added problem is the pressure corporate buyers are under to reduce emissions across supply chains. Despite the challenging landscape, however, there is significant momentum behind the move towards renewables. In the UK, moving towards net zero has been shown to be less costly than one fossil-fuel ‘shock’, underlining the urgent need for green energy solutions.
What does the future hold for the chemical industry in Europe?
Industrial transitions are often painful. Jobs are lost, communities get disconnected from traditional sources of employment and economic activity, and uncertainty around alternative manufacturing and energy emerges. Yet instability is a natural part of any transition period, and Europe retains extraordinary advantages when it comes to chemicals: world-class research institutions, engineering expertise, and industrial capability. European patent filing remains high year-on-year, and this spirit of invention and imagination is key to tackling the next phase of energy change for the chemical industry. Meanwhile, in the US, even recent pressure on ESG policy has not deterred investors; sustainable chemistry attracted $6.6 billion in venture capital funding stateside during the first quarter of 2025 alone.
Looking ahead, I am confident that it won’t be long before this market reaches its full potential, and we see the benefits of sustainably sourced chemicals at a scale that is not currently available. Apart from the growing momentum towards renewable energy, I am also heartened to note that the future of the sector looks bright when it comes to talent. Many startups and scaleups face issues with scalability at the top. People driving these companies in the first place are often scientists with the technical knowledge and vision, but without the commercial background to navigate the industry and give their products the visibility they deserve. Candidates from sectors and disciplines including petrochemicals, operations, finance, logistics, tech, and engineering could easily come in and help the new generation. After all, such skills are transferable!