The petrochemical industry is in a downturn likely to be so long and so deep that it will be forever transformed when it emerges at the other end. Over the next several years, many older, less efficient chemical plants, particularly in Europe, will close. The center of gravity will shift to newer facilities in North America, the Middle East, and China.

When the downturn is over, the industry will likely be more sustainable too. Projects to decarbonize chemical production, such as with low-carbon hydrogen fuel, will start coming online by the end of the decade. Companies are ramping up efforts to produce recycled plastics. Even biobased substitutes for fossil fuel–derived plastics may be in the offing.

These are some of the takeaways from the World Chemical Forum, held last month in Houston by the consulting firm Chemical Market Analytics by OPIS (CMA).

We are in a trough; it’s wide, relatively deep, and the recovery is in 2028 onward,” Dewey Johnson, a senior vice president at CMA, told the 750 attendees in his opening remarks.

Steve Lewandowski, CMA’s vice president of global olefins, provided more detail in his presentation. Firms have erected new ethylene cracker complexes in the US to take advantage of low-cost ethane feedstock. China, which makes chemicals mainly from oil and coal, has been building capacity to make itself more self-sufficient. It has higher production costs than do the US and Middle East but relatively low construction costs.

Because of all this building, the world will have about 40 million metric tons (t) more ethylene capacity than it needs by 2028 when the market hits bottom. Plant operating rates will have dropped from nearly 90% before the COVID-19 pandemic to about 78%. Many petrochemical facilities, particularly those in higher-cost regions like Europe and East Asia will struggle to remain profitable.

“This cyclical trough that we’re going through is much, much longer than we experienced in forever,” Lewandowski said.

To bring the market back into balance, companies will need to shut many older, smaller, and less efficient plants. Already, Sabic and ExxonMobil have announced they are closing ethylene capacity in Europe. LyondellBasell Industries is reviewing the fate of its European operations. “More is likely to come,” Lewandowski said.

For ethylene’s key derivative, polyethylene, the trough is also historic, according to Nick Vafiadis, vice president of global plastics for CMA. Overcapacity combined with production cost disparities between regions “will drive change in the industry, and that change will likely include capacity shutdowns, operating rate cutbacks, and the potential slowdown, or delay, of new capacity start-ups,” he said.

To run at a healthy 87% operating rate by 2029, the polyethylene industry will need to cut 24 million t of annual capacity, Vafiadis said, or roughly 20% of capacity overall.

Demand growth won’t come to the aid of the polyethylene sector as much as it once did, Vafiadis said. Average annual demand growth for the polymer will slow from 4.5% between 2015 and 2020 to 3.0% during the next 10 years.

One big reason: China no longer props up demand. Chinese polyethylene consumption had been growing at double-digit rates—17% in 2020 alone. But by the end of this decade, the country’s consumption of the polymer will be expanding by only about 3.5% per year.

A cooling economy in China, which had been a bedrock for the world’s petrochemical industry for two decades, worried some speakers.

Warren Wilder, nonexecutive director of the Malaysian petrochemical maker Petronas Chemicals Group, noted a slower-than-expected recovery of consumer demand in China following the COVID-19 pandemic. “We are not seeing the same China that we saw before,” he said.

At the conference, Peter Young, president of the investment banking firm Young & Partners, called Chinese companies “irrational” competitors that have exacerbated petrochemical oversupply by building and running huge plants with high production costs.

The Chinese companies “really don’t care about profits,” Young said. Rather, chemical makers backed by the Chinese government are building plants to lessen the country’s dependence on imports. “They are adding capacity for reasons that are not basically economic,” he said.

While the chemical industry faces economic headwinds, it is also trying to reduce its environmental impact. For example, as LyondellBasell considers closing some European petrochemical capacity, it is also preparing to drastically increase the amount of recycled polymer it offers.

At the conference, Yvonne van der Laan, LyondellBasell’s executive vice president for circular and low-carbon solutions, profiled the company’s program to develop recycling hubs at sites in Wesseling, Germany, and Houston, where it operates big petrochemical plants.

The hubs will be centered around the firm’s MoReTec technology, a catalytic process that breaks down waste plastics into liquids that it can feed into ethylene crackers. The company is building a 50,000 t per year plant in Wesseling and considering one in Houston that would be twice the size. “We really want to leverage those assets and the infrastructure that’s around there to build out our circular and low-carbon solutions,” van der Laan said.

Decarbonization of the chemical sector will mean greater integration between chemical producers and industrial gas suppliers, according to David Maher, business development director of hydrogen, carbon capture, and clean energy for the Americas at Linde.

The industrial gas firm is undertaking two of North America’s most ambitious decarbonization projects. It is building a plant in Texas that will make hydrogen from natural gas and capture and store by-product carbon dioxide. Another firm, OCI, will use some of the hydrogen to make ammonia in a plant it is building. Linde will sell the rest through its vast Gulf Coast pipeline network.

Linde plans a similar facility in Alberta that will provide hydrogen as a fuel for an ethylene cracker Dow is building. “We hope this is the shining star for how to do decarbonization of chemicals,” Maher said.

At the conference, Kelly Knopp, CEO of the start-up Citroniq, argued that his company’s approach to decarbonization is better than hydrogen because it doesn’t involve costly capture and storage of CO₂. Citroniq wants to build a complex in Nebraska that would make 400,000 t of polypropylene per year from corn-derived ethanol.

Biobased chemicals have proved economically dicey in the past because they have to compete with cheaper fossil fuel–based counterparts. But Knopp sees value in being able to market polypropylene that will reduce 2 million t per year of CO₂ to companies increasingly concerned about hitting their CO₂ reduction targets.

“This is really a direct-air-capture-to-pellet play,” Knopp said. But instead of big machines capturing CO₂ from the air and concentrating it, “corn farmers can do that for us.”

The plant would need a lot of those farmers. Operating it at capacity would require the corn grown on 46 km². But such a supply chain would be just one of the new realities in store for the chemical industry over the next decade.