ERTC 2025
European refiners reshaping fuels and petrochemicals strategies
Rene Gonzalez Editor, PTQ
Europe’s refining sector is being reshaped by three overlapping drivers. First, there is an accelerating regulatory push under the European Green Deal, which includes the Fit for 55 package, reforms to the EU Emissions Trading System (EU ETS), revi- sions to the FuelEU and Renewable Energy Directive (RED), and the forthcoming Carbon Border Adjustment Mechanism (CBAM). These measures are forcing refiners to cut carbon intensity, invest in cleaner feed- stocks, or face higher operating costs. The result is that refining output shrinks materi- ally under strict climate pathways. For exam- ple, Fit for 55 legally requires all sectors of the EU economy to reduce emissions by at least 55% by 2030, based on 1990 levels. Second, geopolitics, especially the Russia- Ukraine war and the resulting re-routing and sanctioning of hydrocarbon supplies, have tightened some supply channels, changed trade flows, and heightened energy security concerns that affect feedstock availability and logistics, according to the International Energy Agency (IEA). Third, market forces, including declining fossil fuel demand in the long run, stronger mandates for biofuels/sustainable avia- tion fuel (SAF), stagnating refining mar- gins in Europe, and global overcapacity, are prompting closures or conversions to alter- native fuels/chemical feedstocks. Compliance The EU Green Deal and the Fit for 55 pack- age raise the bar for greenhouse gas (GHG) emissions reductions and underpin reforms to the EU ETS, sector standards, and energy taxation, all of which increase compliance costs for energy-intensive industries such as refining. The EU ETS increases carbon expo- sure for refineries, while CBAM focuses on avoiding carbon leakage by charging import- ers for embedded emissions. According to information available from FuelsEurope, this means that European refiners pay higher carbon costs, but imports will also increas- ingly be subject to carbon pricing. The revised RED and FuelEU initiatives raise mandatory shares of renewables in transport fuels (including binders for SAF and advanced biofuels). These mandates create demand opportunities for hydro- treated esters and fatty acids (HEFA)/SAF and co-processing, as reflected in the pres- entations at this week’s ERTC 2025 in Cannes, France, which predict interest in technology advancements, raising capital, realignment of linked process assets, and permitting timeframes, among other factors ( Figure 1 ). Geopolitical forces With the Russia-Ukraine war and sanctions, European refiners have had to source alter- native crudes and manage logistical dis- ruption. The IEA has reported in detail how this has created short-term stress but also prompted strategic resilience planning,
HDO pathway products
~550 Nm /m (3,300 SCFB)
Octadecane
Octadecane
HDO
+16H
Docosane
Rapeseed oil
O
O
O
9c – Oleic acid
CO + H
H O + CO Reverse water-gas shift
CO + 3H
H O + CH Methanation
O
O
13c – Erucic acid
O
9c12c – Linoleic acid
+7H
Decarboxylation pathway products
Heptadecane
Decarboxylation
Heptadecane
~240 Nm /m3 (1,440 SCFB)
Henicosane
Figure 1 Fundamental HEFA chemistry. Source: SAF production via co-processing in the kerosene hydrotreater, Topsoe, PTQ Q2 2024
Market forces It is no secret that long-term oil demand growth is slowing in the Organisation for Economic Co-operation and Development (OECD) transportation fuels market due to electrification, efficiency gains, and modal shifts. IEA scenarios suggest that demand will plateau and evolve across fuel segments, with heavy-duty diesel remaining more resil- ient. This reduces the secular fuel volumes available to refiners in Europe and favours higher-value petrochemical feedstocks. Asia’s petrochemical sector remains a sig- nificant and growing naphtha consumer, as seen with the emergence of new naphtha-fed mega-steam crackers in China. According to a recent report from CHEMANALYST.com, concerns about unstable ethane and pro- pane supply from the US may have prompted China to double its naphtha import quota to 24 million tonnes. In fact, the IEA estimates that China’s naphtha demand will grow by 6% in 2025 and increase to 8.6% in 2026, providing arbitrage opportunities for European refineries still in operation. Against this backdrop, mandates for bio- fuels and SAF increase demand for renewa- ble feedstocks. This creates new markets for European refiners who are able to retrofit or co-process, while also intensifying competi- tion for feedstock oils (raising input costs). It is expected that the RED and FuelEU tra- jectory will point to materially higher biofuel demand by 2030. Regardless, European refining margins have been under pres- sure due to weaker demand, higher operat- ing and CO₂ costs, and global overcapacity, which has prompted closures, conversions to biorefineries or petrochemicals, and con- solidation. According to Insights Global, recent industry analyses have pointed to margin compression and a need for further rationalisation. Shifts in crude export patterns (lighter vs heavier grades) and changing discount
structures are affecting the economics of complex refineries (such as FCCs and coking units). Some plants are advantaged by flex- ibility, while others face costly conversions. A significant portion of available Capex will go toward abatement (carbon capture, uti- lisation, and storage), hydrogen readiness, co-processing units (such as HEFA and biorefining), and flexibility that allows pivot- ing to circular feedstocks or petrochemicals. In certain cases, deep integration with pet- rochemicals to capture higher margins may emerge; however, the conversion to biore- fineries and renewable diesel/SAF plants seems more realistic. Risk management Hedging, longer-term supply contracts, increased storage, and diversified crude sourcing will mitigate the impact of geopoliti- cal shocks. Compliance planning for the ETS and CBAM, along with supply chain tracea- bility for biofeedstocks, is an urgent priority, as discussed in this week’s ERTC presenta- tions and roundtables. Apparently, the refin- ing industry’s engagement with regulators on transition timelines, CBAM design, and realistic sustainability criteria for biofuels and SAF will influence competitiveness and investment certainty. Europe’s refining sector currently sits at an intersection of ambitious climate policy, disruptive geopolitics, and evolving market fundamentals. The net effect is accelerated structural change: lower crude throughput in Europe, higher compliance and capital costs, and new opportunities to redeploy assets toward biofuels, SAF, and petrochemicals. Refiners and their technology enablers who proactively invest in emissions abatement, feedstock flexibility, and new product lines, while managing geopolitical supply risk, will be best positioned for the energy transition.
Water
Ra nate (Nonaromatics)
Water wash
Extract product to BTX fractionation
Extractor
Light nonaromatics
Feed
Solvent recovery column
Rich solvent
Steam
Extractive stripper
Lean solvent
including diversifying suppliers, using hub storage, and ensuring secure shipping lanes. Geopolitical forces have contributed to higher insurance costs, increased shipping expenses, and potential supply disruptions, all of which impact refinery margins. Global factors such as OPEC production strategies, US shale supply, and additional competition from emerging refinery cen- tres affect profitability and arbitrage oppor- tunities. For example, what is becoming of European refiners’ naphtha stream, which is typically targeted at gasoline produc- tion? Instead of shutting down gasoline-pro- ducing catalytic reformers, these refiners may find arbitrage opportunities by export- ing light naphtha to Asian ethylene produc- ers. Historically, a certain amount of their naphtha production has been necessary for producing jet and kerosene fuels. Even the heavy naphtha stream may become more bankable as an export product if aromat- ics demand increases (such as high-purity xylene, shown in Figure 2 ). Figure 2 Extractive distillation process. Source: Advances in distillation processes for BTX aromatics production, Kockler, D, Gas 2025
Contact: editor@petroleumtechnology.com
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