Ethylene at a crossroads

The global ethylene market, long the workhorse of the petrochemical industry, is entering an uncertain era. For decades, rising consumption of plastics and olefin derivatives powered steady growth across North America, Europe, and Asian markets. That momentum, however, is stalling. Demand growth is slowing worldwide, shaped by slowing population growth in key markets, maturing economies, shifting trade flows, and mounting sustainability pressures. At the same time, structural cost differences between regions and growing geopolitical tensions are rewriting the industry’s global trade patterns.

As the 2020s unfold, the ethylene market faces the dual challenge of tepid demand growth and the need for massive reinvestment in cleaner, more competitive production capacity. It is a moment of transition few in the industry can afford to ignore.

Demand growth losing steam

Global ethylene demand growth has moderated sharply from historical levels. Even in Asia, which has long been the main source of ethylene demand, growth rates are declining. China’s consumption has risen only modestly in recent years, hovering around 2% in 2024, below pre-COVID levels. Asia still offers incremental potential (with India growth as a notable example) but it is no longer the booming growth story it once was.

Europe faces outright stagnation, with stricter plastics regulation and weak macroeconomic conditions keeping consumption nearly flat. Even the US, where a low-cost shale gas boom enabled a renaissance in ethylene production, now confronts slower demand increases compared to the heady gains of the 2010s.

This suggests only incremental demand growth in the near term, leaving producers increasingly focused on cost competitiveness, feedstock choice, and carbon intensity rather than volume growth alone.

Regional divergence and geopolitics

Unsurprisingly, slower overall growth is pushing the competitive landscape to fragment along regional lines and forcing a consolidation in production assets. Europe is the most challenged market, with producers struggling against stagnant demand, high energy costs, and tightening emissions rules. Older, naphtha-fed crackers risk closure as imports of cheaper, lower-carbon derivatives gain share.

The US retains a feedstock cost advantage thanks to ethane but escalating trade tensions with China cloud the outlook for exports. American producers built capacity assuming Asian demand, especially from China, would absorb surplus output. Now, with tariffs rising and China adding its own capacity, US exports must find new homes, often at thinner margins.

Asia itself presents a mixed picture. China’s demand is slowing, Southeast Asia’s growth is softer than expected, and India remains a bright spot but off a smaller base. Rising regional self-sufficiency further erodes the long-distance trade flows that once defined the market.

Latin America shows volatile growth, shaped by political and economic conditions. Brazil dominates the region’s ethylene production, but investment and output fluctuate with policy changes and economic uncertainty, making demand growth less predictable.

ESG: a double-edged sword

Environmental, social, and governance (ESG) pressures are reshaping the ethylene sector in nuanced ways. Demand is not driven solely by electrification but also by the need for lighter, more cost-effective components in automotive manufacturing and better thermal performance in buildings.

Electric and hybrid vehicles, which currently carry higher drivetrain costs, push manufacturers toward polyolefins for weight reduction, cost savings, and efficiency gains. In construction, these materials improve insulation while lowering embodied energy. Importantly, replacing metal with polyolefins in select applications reduces the life-cycle carbon footprint due to lower weight and better fuel economy.

Yet, ESG also brings mounting scrutiny. Policymakers, investors, and environmental groups are increasingly focused on carbon intensity across both production and end-of-life stages. Proposed plastic taxes, single-use packaging restrictions, and carbon disclosure mandates threaten to reshape cost structures and product viability.

Despite progress in mechanical and chemical recycling, most studies suggest recycled plastics will displace only a modest share of virgin ethylene demand. Technical quality limits, infrastructure challenges, and the economics of large scale recycling mean virgin production will remain dominant, even as circularity gains importance in carbon-reduction strategies.

The core challenge for producers is balancing demand for affordable, efficient materials with pressure to decarbonise and close the loop on plastics.

Feedstock advantage and untapped potential

Cost competitiveness remains the industry’s lifeblood, and feedstock choice is central to maintaining it. Lighter feeds such as ethane and propane deliver not only lower production costs but also a smaller carbon footprint than heavier naphtha routes. The US shale boom has already shown how abundant, low-cost ethane can reshape global supply dynamics.

Looking forward, recovering ethane from associated gas streams in LNG-exporting countries and scaling interregional ethane trade offers major untapped potential for gas processors and olefin producers alike. Developing such feeds as a standalone commodity will further unlock lower-cost ethylene. It will set the marginal cost curve for the industry and place additional pressure on older, less competitive assets worldwide.

Engineering and technology innovation

Engineering and technology providers are increasingly critical in driving both economics and sustainability for the new ethylene projects. Companies like KBR offer flexible designs for the entire olefin-based complexes, including circular feedstock production and management, utilities, offsites, and infrastructure, that allow clients to optimise feedstock choice, operate with multiple feed types, integrate renewable electricity, streamline energy flows, and deploy advanced control solutions. The economic and operational impact of each decision is considered from the earliest design stages. Together, these approaches help producers improve their competitive position, reduce carbon footprints, and adapt quickly to changing market and regulatory conditions.

A defining decade ahead

In many ways, the story of ethylene over the next 10 years will mirror the broader energy transition: a balancing act between economic growth, environmental stewardship, and geopolitical realities. The outcome is far from certain, but one thing is clear. The era of business as usual for ethylene is over.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/01092025/ethylene-at-a-crossroads/