European refineries need to adjust in order to continue existing.

European refineries need to adopt biofuels and renewable energy production to stay competitive amid stricter climate regulations and declining long-term demand for traditional oil products, according to delegates at the Argus Global Markets Conference.

Since early 2024, Europe has lost about 400,000 b/d of refining capacity. Five refineries have shut down over the past two years, including three since March. High taxes, climate policies, and smaller facilities are making European refineries less competitive compared to those in other regions.

Among the closures was Eni's 88,400 b/d Livorno refinery in Italy, which has been transformed into a hydrotreated vegetable oil (HVO) plant, illustrating how some European refiners are adapting.

Panelists pointed out that key policies like the IMO's Emissions Control Areas, the EU's ReFuelEU aviation mandate, the recast Renewable Energy Directive (RED III), and the Carbon Border Adjustment Mechanism (CBAM) will drive down oil product demand and impact refining margins.

Long-term projections for naphtha and diesel demand appear particularly weak, largely due to a shrinking petrochemical sector, slower industrial growth, and increased adoption of electric vehicles.

Refiners in Europe must adjust to this challenging environment for fossil fuel production by innovating existing refinery processes, as noted by Lukasz Strupczewski, executive director of crude trading at Polish firm Orlen.

He emphasized that co-processing biofuel feedstocks with crude oil is essential to meet regulations and maintain competitiveness.

Strupczewski also mentioned that European refiners need to "plan for growth but anticipate decline," meaning they should expand biofuel production while preparing for the reduced demand for conventional oil products due to tightening regulations.

Grazvydas Bajoras, director at Swiss aviation fuel supplier iFuel, cited used cooking oil (UCO) as a feedstock for producing HVO and HEFA-SPK, a type of sustainable aviation fuel (SAF), and marine biodiesel.

Currently, around 22 European refineries are co-processing biofuel feedstocks to produce HVO and/or HEFA-SPK, as tracked by Argus, with more expected to follow suit in the coming years.

Bajoras also urged refiners to invest in hydrogen production at their facilities, which could be paired with captured carbon to create synthetic fuels like e-SAF.