What's the real outlook for European petroleum refining as the sector navigates energy transition pressures, shifting demand, and evolving investment patterns? In this episode, IIR's Shaheen Chohan (Senior VP of Global Analytics) sits down with Josef Murr (European Regional Manager - Refining, Oil & Gas) to unpack the forces redefining the continent's downstream landscape. They analyze the future of European petroleum refining, focusing on capital flows, the balance between traditional operations and decarbonization, and the strategic opportunities and challenges shaping the industry's trajectory.
[Intro] (00:00):
If you've been trying to understand whether the current supply disruption associated with transportation fuels coming out of the Middle East is lending more support for active planned capital investments currently being tracked within European petroleum refineries, then this conversation will help you connect the dots.
Shaheen Chohan (00:38):
Welcome to Navigating the Currents of Change. My name is Shaheen Chohan and I lead Market Analytics at Industrial Info Resources, a global provider of energy and industrial infrastructure market intelligence for more than 40 years. In our podcast, we will be taking a closer look at some of the key themes and trends being seen as Europe continues to forge ahead with its goal of decarbonizing the transportation sector. And to help me dissect some of these, I am delighted to be joined by Josef Murr, who heads our European research for both oil and gas and petroleum refining. Welcome, Josef.
Josef Murr (01:08):
Thank you, Shaheen. Pleasure to be here.
Shaheen Chohan (01:11):
All of the analysis and discussion points covered today are according to Industrial Info Resources data, sourced from our global Market Intelligence Project database.
So, Josef, when we last had our discussion a few months ago, European refiners have continued to struggle really with what I guess is a structural decline both in long-term demand, intense competition from other refining sectors — namely the US and the Middle East — at a time when we are now seeing some real challenges around feedstock cost as well as supply disruption. How has this sort of impacted sentiment across European refiners? Could we expect to see a more focused build-out of regional capacity to try and offset some of those supply issues, or is it really just a one-way trend which is downwards?
Josef Murr (02:07):
Yeah. Well, the overall sentiment at the moment, to give a very short answer, would be very cautious — a lot of wait-and-see at the moment, because, as you named already, there's a lot of uncertainties and pressures that the refineries are facing. The long-term pressure is mainly related to the energy transition that is ongoing in Europe. But on top of this, we see, first, the situation with supplies from Russia that have been banned — pretty much supplies of crude oil, but also natural gas. And then on top of this comes also now the supply issues from the Middle East, where a lot of products supposed to go to Europe are stuck behind the Strait of Hormuz. So all of this leads to a lot more uncertainty, a lot more price fluctuations.
Now, we haven't seen a massive change in planned investments or planned operation levels of the refineries. Plant maintenance events are largely taking place as planned. We have confirmed two events in Italy that have been pushed out by a few months due to recent events, but largely this is all taking place as planned. The same goes for larger capital spending — really, we haven't seen any major shifts yet. Now what could happen, of course, is that there could be a push for more supply security within Europe and building out more capacity — so there could be a push to speed up some of the renewable energy projects that are planned. Those, however, also rely on government support, largely both on a regulatory level and a financial level. We also have to see to what extent this will be forthcoming. The EU has just released another plan for supply security, but as often with those plans, it's very light on detail at the moment, so we'll need to wait and see really what will come out of that.
Shaheen Chohan (04:33):
Well, that's interesting, because on one hand we've got structural decline in demand growth — you've got high electric vehicle penetration here. But what you're also saying is it's about supply security and offsetting some of that price escalation that we've seen across transportation fuels — we've seen double-digit price increases. So would you say that the European petroleum refining system as a whole, from a capacity perspective — would you say it's in a state of expansion now, or could see some expansion? Is it flatlining, or is that contraction going to continue? You've seen contraction over the last few years, right?
Josef Murr (05:13):
Yes. So we have seen a contraction that has been going on for a very long time — for way over a decade. At this point, last year alone, we have seen the permanent closure of over 400,000 barrels a day of crude distillation capacity. There was the Grangemouth refinery in Scotland, the Lindsey refinery in England, and Shell closed a crude distillation unit in Germany. In addition to that, major companies are reducing their exposure to the European market. So BP is in the process of selling two refineries in Germany — Gelsenkirchen and Horst. They have actually already agreed; the sale is just waiting for regulatory approval.
Now, why do we see this decline? There's a couple of reasons. First of all, it's the demand side — the energy transition, with all the policies around electric vehicles and electric heating systems, which just reduce the demand for classic diesel or petrol. Then we have seen all the new refineries coming online in other parts of the world that can produce those fuels much cheaper, and those regions have now started to export the finished products into Europe rather than just crude oil. And the third reason is simply that in Europe, production costs are very high compared to other regions — especially the cost of energy, electricity, but also the natural gas that you need for your operations. So we are expecting this trend to continue. But we also don't expect a complete collapse of refining capacity, because there are still sectors that rely on feedstock from refineries — sectors that cannot be electrified as easily as, let's say, passenger cars. That would be aviation, for example, or long-distance heavy goods road transport, or also the chemical industry, which relies very much on feedstock from petroleum refineries.
Shaheen Chohan (07:30):
Now, I'm just coming back to that point — overview of capacity in the US post-COVID, the US refining system kind of reached a point of balance, right? There was some right-sizing, we saw capacity closed in the US. Do you now think, at least over the short term, we've got something of a supply-demand balance in the European system? So we may not see too many more closures — we should see business as usual, you think? Because that's going to be important in terms of the operational fleets that are out there and the capacity that's out there for future — certainly over the near term — in-plant capital spending, and as you mentioned, the turnarounds and maintenance activity. So you think we've reached something of a balance now for a short period of time?
Josef Murr (08:10):
Yeah, I think at the moment we have reached a pretty balanced level. So there is no need for massive further closures of refineries now. We won't see any expansions either — again, due to the policies around the energy transition. Now, longer term, of course, there could be a bit more of a decline, just because the policies around the energy transition will get tighter over time. So we could see in the future a continuation of a slow decline.
Shaheen Chohan (08:49):
Okay, now I appreciate Europe is scaling electric vehicle adoption probably faster than many other markets, right, and we are now, as you said, at this point where we think supply and demand are fairly well balanced. Do you expect to see any new-build refineries at any time in the near term? Is there anything in the pipeline across Europe?
Josef Murr (09:07):
Yeah, there isn't much. So we have seen a few individual units being built. There was, last year, Exxon opened a new low-sulfur diesel unit in England, and TotalEnergies is in the process of commissioning a similar one in France at the moment. But those are isolated cases, and we do not see anything like that in the future — certainly no completely brand-new refinery. To see a project like this, we need to look as far as Turkey. In Turkey, there is a large project for an over 300,000 barrels a day refinery, which is so far progressing according to plans. Ukraine also, in principle, would be interested, because their whole refining capacity is currently shut down. But of course, due to the ongoing security situation there, this isn't possible at the moment.
Russia was investing still in those projects — and especially not so much for new capacity, but to increase the depth of refining and to get more out of each barrel of crude oil, and also to improve the quality of their fuels, to bring them up to European standards. But due to sanctions against Russia following the Ukraine conflict, they have lost access to Western technologies, and therefore all those projects — or the majority of them at least — are on hold or delayed. To some extent they are trying to replace those technologies with Chinese and other technologies, but obviously this takes a lot of time, so projects are still being delayed.
Shaheen Chohan (11:00):
Now, Josef, I know that you and your team also look after the upstream oil and gas, right?
Josef Murr (11:06):
Yes.
Shaheen Chohan (11:06):
Do you think the need to secure longer-term supply security from an oil and gas perspective, and obviously the risk of future price disruptions from events like we've just seen in the Middle East — do you think that could actually lend more support to seeing more upstream capital spending being deployed in, say, the North Sea?
Josef Murr (11:26):
For example, the North Sea could definitely play a role in supply security here — there's definitely potential left. Most potential would be in the UK and Norwegian areas. The UK has two large untapped fields — there's Rosebank and there's Cambo, and we're following the developments very closely. Now, the owners could in principle move ahead with next steps, but there's a lot of controversy around those — a lot of protests from environmental groups who are saying for supply security, we should not invest into hydrocarbons, we should just invest into renewable energies. And so the government is at the moment not fully behind those projects, so we'll need to wait and see what happens there.
Norway is certainly more interesting — first of all, there's just more potential still left, especially on the gas side. Governments in Norway generally are more favorable for those projects, and so we could definitely see more investment there in the short term, probably mostly tie-backs to existing fields, because they are a relatively quick and cost-efficient way to just maximize the production from your existing fields. But longer term, we could also see newer fields coming online. So there is definitely potential, and this could play a role in securing supplies.
Shaheen Chohan (12:58):
Now, Josef, also staying with the North Sea — a large proportion of the spending that you've been tracking has been associated with closures. Do you think, with the current kind of complexity — I guess is probably the best word to use — around supply of both oil and gas, do you think we may see some delays in some of those closures? Might you see those closure dates being pushed out and kept those as operational?
Josef Murr (13:23):
Yes, definitely. Where it's possible, we might see some delays, because it's just relatively easy to keep existing fields in production. If you want to get a new field, then it's very complicated to get the permits and very expensive to get it started. So if you have some crude oil or gas left in your existing fields, you definitely want to push out the closure and maximize the production as much as you can. However, many of those fields simply have reached the end of their lifetime, and there's no possibility — so they may be reused in the future as a storage for carbon or something like that.
Shaheen Chohan (14:10):
Now, coming back to refining — have you seen any kind of shift, I guess, in the size or composition and timing of refining capital spending over the last years? What are some of the big shifts — in the past, spending was over there, today it's moved over here. How has the composition of spending changed?
Josef Murr (14:30):
Yeah, we haven't really seen any large shifts in spending in European refineries for quite some time, actually. There's, in fact, really only two main areas that refineries are investing in. One is just all the smaller projects that are tied in with the maintenance turnarounds — just replacing equipment that has reached the end of its lifetime, or doing smaller upgrades or electrification initiatives, things like that. On the larger investment project side, this is really largely going towards renewable energy. We don't see much else really, but we are tracking at the moment over $10 billion of spending towards renewable energy projects in European refineries that are scheduled to kick off this year or next. And if we look further into the future, then there's more coming, and those projects would be around green hydrogen, or sustainable aviation fuel, or hydrogenated vegetable oils. So we are not expecting a return of traditional refining projects, and supply security in the future will have to come from those renewable energy projects.
The advantage of that is they might even give more security of supply, because if you invest in new traditional refining units, you still need to import a lot of crude oil and a lot of gas. Now, even if we expand in the North Sea a little bit, it would not be sufficient. However, if we invest in renewable energy projects, then we can grow the crops we need for biofuels regionally, and also the electricity that is required can be partially, at least, produced in the region with wind farms and solar farms.
Shaheen Chohan (16:39):
Now, a lot of the capital spending that you've been tracking and reporting on is obviously, as you've just highlighted, a big proportion of that is now associated with low-carbon-intensity fuels. I'm assuming these are still very dependent on incentives, or at least policy is driving a lot of this capital investment. Now, I know from a societal point of view, end users and drivers are very happy and keen to adopt electric vehicles. But I think from a capital spending perspective, is policy still a big enabler and a requirement to see the decarbonization of the refining system in Europe?
Josef Murr (17:19):
Yes, it would be. So the European Union has a lot of policies in place. There is the overall goal, which is to reduce greenhouse emissions by 55% by 2030 compared to 1990 levels, and 2050 is supposed to reach net zero. And to reach that overall goal, there's a huge number of individual goals for all kinds of sectors. So for example, as a passenger car — you mentioned them — by 2035, new cars sold are supposed to be emission-free, which will largely be electric cars, but could in theory be running on synthetic fuels. Then, for example, industrial hydrogen — 42% of that is supposed to come from biological raw materials by 2030, then increasing over time further. And there's a lot of blending mandates also — so if you go to the petrol station and buy your diesel or your petrol, then typically this comes with 5% or 10% biological content, and the same for aviation fuel — there are similar blending mandates in place. So yes, all of that helps, or gives security to investors, that if they invest into those new technologies, there will be a market for their products.
Now, the overall outlook for those investments still remains mixed. And the problem is that, first of all, longer term, there's an insecurity about those policy goals. They are in place now, but we don't know what future politicians will do — they might stick with them, or they might water them down. And also, beyond those mandates, there is just no appetite from consumers to pay extra for greener fuels.
Shaheen Chohan (19:18):
Paying that premium for low carbon.
Josef Murr (19:24):
Yeah, so we don't see that.
Shaheen Chohan (19:25):
Right. So bearing that in mind, have we seen any kind of cancellations or delays in any of the planned projects around renewable diesel or SAF?
Josef Murr (19:38):
Yeah, just one large example would be — Shell had a plan for a very large biofuels unit at its Pernis refinery in the Netherlands, and this was in fact already under construction. And in 2024, they initially paused the construction to review the project, and last year it was then canceled altogether — just because there's no market for a project on that large a scale in that area.
Shaheen Chohan (20:11):
I want to come back to closures and rightsizing — the comment I made earlier about what was seen as a trend in the US, sort of post-COVID, a number of refineries and indeed units that were shut down and mothballed actually were then retooled and retrofitted and came back to market. But instead of producing traditional transportation fuels, they had been refitted to produce renewable diesel or sustainable aviation fuel. Is that a potential trend that you have seen, or could see going forward, in Europe?
Josef Murr (20:48):
Yeah, we do see a bit of that also, and in fact we have seen this for over a decade — the first one was the Venice refinery in Italy that reopened as a biorefinery in 2014. Then there was a refinery in France in 2018, I think. And currently, for example, Eni is working on a project to turn one of its Italian refineries into a biorefinery — it's currently under construction. But more than this, what we see is that refineries are really keeping the traditional refining online — they might reduce it a bit, but they don't shut it down altogether, and invest in those newer green energy projects alongside. So it's really what they are doing is a dual approach of basically maximizing the profits from their existing crude oil refining operations in the short term, but then also having some long-term green energy projects.
Shaheen Chohan (21:54):
I'd like to come back to electric vehicle adoption — in that statement I made a little earlier about Europe actually having some of the highest penetration rates and sales rates across the world. Do you think the EV market will lead — do you think that will impact possibly some of the viability even of some of the biofuel refineries going forward?
Josef Murr (22:12):
I don't think it really impacts the viability of those — there's room for both, and in fact the need for both. Electric vehicles — what they will replace is a lot of the need for diesel or petrol. But all those biofuels projects are very much required for sectors that cannot be as easily electrified. So again, your long-distance road, heavy goods road transport, or also a lot of need for industrial diesel where we still need some liquid fuel instead of electrification.
Shaheen Chohan (22:57):
Josef, from the slide here that I'm showing, we can see that sustainable aviation fuel is obviously a major component of the transportation decarbonization focus and pathway. What are the current targets being sought across Europe from airlines and governments as well, and do you think some of these targets are actually realistic?
Josef Murr (23:18):
Yeah, okay, there will be a lot of numbers now. So 2% — that's the first number — that is the current target for sustainable aviation fuel as part of all aviation fuel being sold in the European Union. So it's basically a blending mandate — 2% sustainable needs to be blended in. That's in place since 2025, expected to rise to 6% by 2030, and then 20% by 2035, and then eventually it will go up to 70%.
Now, how realistic is that? If you look at capacity that is currently online and planned, then we think that the 2030 target is very much realistic. The 6% can be achieved. 2035, the 20% is more ambitious, but there's more time left still, so I think that would still be achievable. Now where it gets a little trickier is on a sub-target, because the target that I mentioned is just the overall — but there's a sub-target for synthetic fuels. So the overall target can be reached largely by fuels based on biological feedstock, but the synthetic fuels target has to be done without biological feedstock. So what that does is combine green hydrogen with mostly CO2 that is captured in a carbon capture system, creating kind of a syngas from that, and then using something like a Fischer-Tropsch system to turn this into a liquid fuel.
Now for that, there is currently no target in place — so the 2% that are in place at the moment can be reached by 100% biofuels. However, in 2030, 1.2% of all the aviation fuel has to be synthetic fuel, increasing to 5% by 2035 and apparently 35% eventually. And I think that is very, very ambitious to say the least, because that technology is really in its infancy — it's in its pilot stage and research stage, really. We don't see any large-scale deployment of this. So even the 1.2% planned for 2030 looks very, very ambitious. The 5% for 2035, even that, because it's less than ten years away, and as we're seeing no large-scale deployment yet, we don't know if the technology works on a large scale. So this seems extremely ambitious. So what I would expect is that some of those goals may be made more flexible in the future, but we'll have to see.
Shaheen Chohan (26:10):
So beyond sustainable aviation fuel, are there any sort of new emerging pockets of capital investment that you're starting to see — some of what we call trending sectors, that you think could be good opportunities for folks servicing the biofuels market?
Josef Murr (26:28):
Yeah, in addition to sustainable aviation fuel, we also see investment towards co-processing. This is kind of a nice or light type of investment that can be tied in very easily with your existing infrastructure. You basically take your existing processing units for crude oil, like hydrotreaters or crackers, and you do some upgrades on them, and then basically enable them to co-process — typically 10 or 20% of biological feedstock alongside the crude oil. And yes, this would create a lot of opportunities for companies to get involved in projects. So those projects also come with pretreatment units that are necessary, blending facilities, control systems and all that is required — so creating also more maintenance opportunities.
Then also we see hydrotreated vegetable oil, or HVO production — mainly HVO diesel. And that could be just as important as sustainable aviation fuel, because that is again for all your long-distance road transport or your industrial diesel needs — that could be met with those units in the future.
Shaheen Chohan (28:02):
So a lot of what I'm hearing is a lot of the investments that we have been seeing associated with decarbonization have been on the bio-feedstock side of the process. What technologies are you seeing being deployed and invested in to support this decarbonization journey?
Josef Murr (28:15):
Yeah, so first of all, when we talk of decarbonization, we cannot only talk about the fuels that are produced — you can also decarbonize your processes, and there's a lot of smaller projects around process decarbonization. So we're seeing, for example, waste heat recovery systems being installed to replace some of the natural gas you're burning in your boilers with waste heat that is there anyway. Then we might see just installation of advanced control systems — even that can help you minimize your energy needs and maximize your efficiency, plugging all those smaller leaks and gaps you're having, to prevent methane emissions. So a lot of those kinds of smaller projects that can relatively quickly and relatively cheaply be done.
Refineries are also investing in low-carbon hydrogen production. We're seeing some movement now on the green hydrogen projects — Shell is currently building a 100-megawatt unit in Germany, and BP is also building a 100-megawatt unit, also in Germany. We're seeing also some refineries planning to invest in carbon capture systems — those are mostly targeted at the steam methane reformers, which would be your traditional production unit for hydrogen, or "gray hydrogen" as it is now known, simply because that unit has a lot of CO2 emissions. This would basically then create the blue hydrogen.
Now, with those carbon capture projects, the problem is that they do rely on the availability of the associated infrastructure also, because you cannot just capture the carbon — you need to do something with it. Now, technically you can use some of it to create those synthetic fuels that we already mentioned, but the majority will have to be safely stored somewhere eventually. So if a refinery is planning that type of project, but there's no infrastructure available, then what happens typically is those projects get delayed and delayed. But we do see some movement also — again, in the Netherlands, for example, there's the Porthos project. So Shell is currently building a carbon capture system that will feed its carbon into this Porthos infrastructure, and it will then be stored under the North Sea.
Then again, we already mentioned the synthetic fuels projects — they are just in their infancy at the moment, and we don't see any large movement there yet, but some refineries have plans in principle for those. A similar story with — we have tracking a few projects about plastic recycling initiatives from refineries, where they try to create a pyrolysis oil from waste plastic. And in fact, OMV in Austria has two of those units already in operation, but they are small pilot units. They also have a plan for a larger industrial-scale unit, but again, this gets pushed out and pushed out. And the problem with many of those newer technologies seems to be that they work in principle in the laboratory, but the scaling up seems to be the issue.
Shaheen Chohan (31:46):
In conclusion, really, European refiners have all been struggling for quite a while from a cost perspective. What do you think the outlook for refiners is across Europe, bearing in mind, as you just said earlier on in the discussion, a lot of new capacity coming online from Asia — we have a lot of cost-advantaged production in the US and also the Middle East. What do you think the outlook is, and what could we see in terms of spending going forward for European refiners?
Josef Murr (32:17):
Now, there is still a good case to be made for European refiners. They still have one very large advantage over any competitors — and to say it as an estate agent would probably say it: it's location, location, location, right? They are where the consumers are. Europe is still a very large market for products from a refinery and will remain so for a long time. Also, those refineries are at strategic locations where there is all the required infrastructure in place — like your ports, your pipelines, your storage facilities. All of that can also be easily adapted for a low-carbon economy.
Now we have seen the supplies become scarce — the latest one now with the Middle East conflict, around aviation fuel especially — and seeing some airlines already canceling flights from their summer schedules, large airlines like Lufthansa or KLM. So if you would have more production within Europe, that could certainly help to prevent those kinds of issues. For the refineries to remain relevant, I think they will have to adapt — so they will have to start, or continue if they have already started, to decarbonize their processes as well as the products they are producing. And if they're doing that, they probably will remain relevant for many years to come.
Shaheen Chohan (33:57):
So that brings us to the conclusion of our podcast. A very big thanks to you, Josef, for sharing your insights and perspectives today — very much appreciated. And a very big thanks to all of you who've managed to tune in. If any of you have any further questions about any of the topics that were discussed today, then please do reach out to myself or Josef via the contact details that you can see here. All of the data and insights generated during the discussion are according to Industrial Info Resources data, sourced from our global Market Intelligence Project database. And finally, a big thanks to all of you who have joined us today. I hope we have helped you all better navigate some of those currents of change we're seeing.
If you've been trying to understand whether the current supply disruption associated with transportation fuels coming out of the Middle East is lending more support for active planned capital investments currently being tracked within European petroleum refineries, then this conversation will help you connect the dots.
Shaheen Chohan (00:38):
Welcome to Navigating the Currents of Change. My name is Shaheen Chohan and I lead Market Analytics at Industrial Info Resources, a global provider of energy and industrial infrastructure market intelligence for more than 40 years. In our podcast, we will be taking a closer look at some of the key themes and trends being seen as Europe continues to forge ahead with its goal of decarbonizing the transportation sector. And to help me dissect some of these, I am delighted to be joined by Josef Murr, who heads our European research for both oil and gas and petroleum refining. Welcome, Josef.
Josef Murr (01:08):
Thank you, Shaheen. Pleasure to be here.
Shaheen Chohan (01:11):
All of the analysis and discussion points covered today are according to Industrial Info Resources data, sourced from our global Market Intelligence Project database.
So, Josef, when we last had our discussion a few months ago, European refiners have continued to struggle really with what I guess is a structural decline both in long-term demand, intense competition from other refining sectors — namely the US and the Middle East — at a time when we are now seeing some real challenges around feedstock cost as well as supply disruption. How has this sort of impacted sentiment across European refiners? Could we expect to see a more focused build-out of regional capacity to try and offset some of those supply issues, or is it really just a one-way trend which is downwards?
Josef Murr (02:07):
Yeah. Well, the overall sentiment at the moment, to give a very short answer, would be very cautious — a lot of wait-and-see at the moment, because, as you named already, there's a lot of uncertainties and pressures that the refineries are facing. The long-term pressure is mainly related to the energy transition that is ongoing in Europe. But on top of this, we see, first, the situation with supplies from Russia that have been banned — pretty much supplies of crude oil, but also natural gas. And then on top of this comes also now the supply issues from the Middle East, where a lot of products supposed to go to Europe are stuck behind the Strait of Hormuz. So all of this leads to a lot more uncertainty, a lot more price fluctuations.
Now, we haven't seen a massive change in planned investments or planned operation levels of the refineries. Plant maintenance events are largely taking place as planned. We have confirmed two events in Italy that have been pushed out by a few months due to recent events, but largely this is all taking place as planned. The same goes for larger capital spending — really, we haven't seen any major shifts yet. Now what could happen, of course, is that there could be a push for more supply security within Europe and building out more capacity — so there could be a push to speed up some of the renewable energy projects that are planned. Those, however, also rely on government support, largely both on a regulatory level and a financial level. We also have to see to what extent this will be forthcoming. The EU has just released another plan for supply security, but as often with those plans, it's very light on detail at the moment, so we'll need to wait and see really what will come out of that.
Shaheen Chohan (04:33):
Well, that's interesting, because on one hand we've got structural decline in demand growth — you've got high electric vehicle penetration here. But what you're also saying is it's about supply security and offsetting some of that price escalation that we've seen across transportation fuels — we've seen double-digit price increases. So would you say that the European petroleum refining system as a whole, from a capacity perspective — would you say it's in a state of expansion now, or could see some expansion? Is it flatlining, or is that contraction going to continue? You've seen contraction over the last few years, right?
Josef Murr (05:13):
Yes. So we have seen a contraction that has been going on for a very long time — for way over a decade. At this point, last year alone, we have seen the permanent closure of over 400,000 barrels a day of crude distillation capacity. There was the Grangemouth refinery in Scotland, the Lindsey refinery in England, and Shell closed a crude distillation unit in Germany. In addition to that, major companies are reducing their exposure to the European market. So BP is in the process of selling two refineries in Germany — Gelsenkirchen and Horst. They have actually already agreed; the sale is just waiting for regulatory approval.
Now, why do we see this decline? There's a couple of reasons. First of all, it's the demand side — the energy transition, with all the policies around electric vehicles and electric heating systems, which just reduce the demand for classic diesel or petrol. Then we have seen all the new refineries coming online in other parts of the world that can produce those fuels much cheaper, and those regions have now started to export the finished products into Europe rather than just crude oil. And the third reason is simply that in Europe, production costs are very high compared to other regions — especially the cost of energy, electricity, but also the natural gas that you need for your operations. So we are expecting this trend to continue. But we also don't expect a complete collapse of refining capacity, because there are still sectors that rely on feedstock from refineries — sectors that cannot be electrified as easily as, let's say, passenger cars. That would be aviation, for example, or long-distance heavy goods road transport, or also the chemical industry, which relies very much on feedstock from petroleum refineries.
Shaheen Chohan (07:30):
Now, I'm just coming back to that point — overview of capacity in the US post-COVID, the US refining system kind of reached a point of balance, right? There was some right-sizing, we saw capacity closed in the US. Do you now think, at least over the short term, we've got something of a supply-demand balance in the European system? So we may not see too many more closures — we should see business as usual, you think? Because that's going to be important in terms of the operational fleets that are out there and the capacity that's out there for future — certainly over the near term — in-plant capital spending, and as you mentioned, the turnarounds and maintenance activity. So you think we've reached something of a balance now for a short period of time?
Josef Murr (08:10):
Yeah, I think at the moment we have reached a pretty balanced level. So there is no need for massive further closures of refineries now. We won't see any expansions either — again, due to the policies around the energy transition. Now, longer term, of course, there could be a bit more of a decline, just because the policies around the energy transition will get tighter over time. So we could see in the future a continuation of a slow decline.
Shaheen Chohan (08:49):
Okay, now I appreciate Europe is scaling electric vehicle adoption probably faster than many other markets, right, and we are now, as you said, at this point where we think supply and demand are fairly well balanced. Do you expect to see any new-build refineries at any time in the near term? Is there anything in the pipeline across Europe?
Josef Murr (09:07):
Yeah, there isn't much. So we have seen a few individual units being built. There was, last year, Exxon opened a new low-sulfur diesel unit in England, and TotalEnergies is in the process of commissioning a similar one in France at the moment. But those are isolated cases, and we do not see anything like that in the future — certainly no completely brand-new refinery. To see a project like this, we need to look as far as Turkey. In Turkey, there is a large project for an over 300,000 barrels a day refinery, which is so far progressing according to plans. Ukraine also, in principle, would be interested, because their whole refining capacity is currently shut down. But of course, due to the ongoing security situation there, this isn't possible at the moment.
Russia was investing still in those projects — and especially not so much for new capacity, but to increase the depth of refining and to get more out of each barrel of crude oil, and also to improve the quality of their fuels, to bring them up to European standards. But due to sanctions against Russia following the Ukraine conflict, they have lost access to Western technologies, and therefore all those projects — or the majority of them at least — are on hold or delayed. To some extent they are trying to replace those technologies with Chinese and other technologies, but obviously this takes a lot of time, so projects are still being delayed.
Shaheen Chohan (11:00):
Now, Josef, I know that you and your team also look after the upstream oil and gas, right?
Josef Murr (11:06):
Yes.
Shaheen Chohan (11:06):
Do you think the need to secure longer-term supply security from an oil and gas perspective, and obviously the risk of future price disruptions from events like we've just seen in the Middle East — do you think that could actually lend more support to seeing more upstream capital spending being deployed in, say, the North Sea?
Josef Murr (11:26):
For example, the North Sea could definitely play a role in supply security here — there's definitely potential left. Most potential would be in the UK and Norwegian areas. The UK has two large untapped fields — there's Rosebank and there's Cambo, and we're following the developments very closely. Now, the owners could in principle move ahead with next steps, but there's a lot of controversy around those — a lot of protests from environmental groups who are saying for supply security, we should not invest into hydrocarbons, we should just invest into renewable energies. And so the government is at the moment not fully behind those projects, so we'll need to wait and see what happens there.
Norway is certainly more interesting — first of all, there's just more potential still left, especially on the gas side. Governments in Norway generally are more favorable for those projects, and so we could definitely see more investment there in the short term, probably mostly tie-backs to existing fields, because they are a relatively quick and cost-efficient way to just maximize the production from your existing fields. But longer term, we could also see newer fields coming online. So there is definitely potential, and this could play a role in securing supplies.
Shaheen Chohan (12:58):
Now, Josef, also staying with the North Sea — a large proportion of the spending that you've been tracking has been associated with closures. Do you think, with the current kind of complexity — I guess is probably the best word to use — around supply of both oil and gas, do you think we may see some delays in some of those closures? Might you see those closure dates being pushed out and kept those as operational?
Josef Murr (13:23):
Yes, definitely. Where it's possible, we might see some delays, because it's just relatively easy to keep existing fields in production. If you want to get a new field, then it's very complicated to get the permits and very expensive to get it started. So if you have some crude oil or gas left in your existing fields, you definitely want to push out the closure and maximize the production as much as you can. However, many of those fields simply have reached the end of their lifetime, and there's no possibility — so they may be reused in the future as a storage for carbon or something like that.
Shaheen Chohan (14:10):
Now, coming back to refining — have you seen any kind of shift, I guess, in the size or composition and timing of refining capital spending over the last years? What are some of the big shifts — in the past, spending was over there, today it's moved over here. How has the composition of spending changed?
Josef Murr (14:30):
Yeah, we haven't really seen any large shifts in spending in European refineries for quite some time, actually. There's, in fact, really only two main areas that refineries are investing in. One is just all the smaller projects that are tied in with the maintenance turnarounds — just replacing equipment that has reached the end of its lifetime, or doing smaller upgrades or electrification initiatives, things like that. On the larger investment project side, this is really largely going towards renewable energy. We don't see much else really, but we are tracking at the moment over $10 billion of spending towards renewable energy projects in European refineries that are scheduled to kick off this year or next. And if we look further into the future, then there's more coming, and those projects would be around green hydrogen, or sustainable aviation fuel, or hydrogenated vegetable oils. So we are not expecting a return of traditional refining projects, and supply security in the future will have to come from those renewable energy projects.
The advantage of that is they might even give more security of supply, because if you invest in new traditional refining units, you still need to import a lot of crude oil and a lot of gas. Now, even if we expand in the North Sea a little bit, it would not be sufficient. However, if we invest in renewable energy projects, then we can grow the crops we need for biofuels regionally, and also the electricity that is required can be partially, at least, produced in the region with wind farms and solar farms.
Shaheen Chohan (16:39):
Now, a lot of the capital spending that you've been tracking and reporting on is obviously, as you've just highlighted, a big proportion of that is now associated with low-carbon-intensity fuels. I'm assuming these are still very dependent on incentives, or at least policy is driving a lot of this capital investment. Now, I know from a societal point of view, end users and drivers are very happy and keen to adopt electric vehicles. But I think from a capital spending perspective, is policy still a big enabler and a requirement to see the decarbonization of the refining system in Europe?
Josef Murr (17:19):
Yes, it would be. So the European Union has a lot of policies in place. There is the overall goal, which is to reduce greenhouse emissions by 55% by 2030 compared to 1990 levels, and 2050 is supposed to reach net zero. And to reach that overall goal, there's a huge number of individual goals for all kinds of sectors. So for example, as a passenger car — you mentioned them — by 2035, new cars sold are supposed to be emission-free, which will largely be electric cars, but could in theory be running on synthetic fuels. Then, for example, industrial hydrogen — 42% of that is supposed to come from biological raw materials by 2030, then increasing over time further. And there's a lot of blending mandates also — so if you go to the petrol station and buy your diesel or your petrol, then typically this comes with 5% or 10% biological content, and the same for aviation fuel — there are similar blending mandates in place. So yes, all of that helps, or gives security to investors, that if they invest into those new technologies, there will be a market for their products.
Now, the overall outlook for those investments still remains mixed. And the problem is that, first of all, longer term, there's an insecurity about those policy goals. They are in place now, but we don't know what future politicians will do — they might stick with them, or they might water them down. And also, beyond those mandates, there is just no appetite from consumers to pay extra for greener fuels.
Shaheen Chohan (19:18):
Paying that premium for low carbon.
Josef Murr (19:24):
Yeah, so we don't see that.
Shaheen Chohan (19:25):
Right. So bearing that in mind, have we seen any kind of cancellations or delays in any of the planned projects around renewable diesel or SAF?
Josef Murr (19:38):
Yeah, just one large example would be — Shell had a plan for a very large biofuels unit at its Pernis refinery in the Netherlands, and this was in fact already under construction. And in 2024, they initially paused the construction to review the project, and last year it was then canceled altogether — just because there's no market for a project on that large a scale in that area.
Shaheen Chohan (20:11):
I want to come back to closures and rightsizing — the comment I made earlier about what was seen as a trend in the US, sort of post-COVID, a number of refineries and indeed units that were shut down and mothballed actually were then retooled and retrofitted and came back to market. But instead of producing traditional transportation fuels, they had been refitted to produce renewable diesel or sustainable aviation fuel. Is that a potential trend that you have seen, or could see going forward, in Europe?
Josef Murr (20:48):
Yeah, we do see a bit of that also, and in fact we have seen this for over a decade — the first one was the Venice refinery in Italy that reopened as a biorefinery in 2014. Then there was a refinery in France in 2018, I think. And currently, for example, Eni is working on a project to turn one of its Italian refineries into a biorefinery — it's currently under construction. But more than this, what we see is that refineries are really keeping the traditional refining online — they might reduce it a bit, but they don't shut it down altogether, and invest in those newer green energy projects alongside. So it's really what they are doing is a dual approach of basically maximizing the profits from their existing crude oil refining operations in the short term, but then also having some long-term green energy projects.
Shaheen Chohan (21:54):
I'd like to come back to electric vehicle adoption — in that statement I made a little earlier about Europe actually having some of the highest penetration rates and sales rates across the world. Do you think the EV market will lead — do you think that will impact possibly some of the viability even of some of the biofuel refineries going forward?
Josef Murr (22:12):
I don't think it really impacts the viability of those — there's room for both, and in fact the need for both. Electric vehicles — what they will replace is a lot of the need for diesel or petrol. But all those biofuels projects are very much required for sectors that cannot be as easily electrified. So again, your long-distance road, heavy goods road transport, or also a lot of need for industrial diesel where we still need some liquid fuel instead of electrification.
Shaheen Chohan (22:57):
Josef, from the slide here that I'm showing, we can see that sustainable aviation fuel is obviously a major component of the transportation decarbonization focus and pathway. What are the current targets being sought across Europe from airlines and governments as well, and do you think some of these targets are actually realistic?
Josef Murr (23:18):
Yeah, okay, there will be a lot of numbers now. So 2% — that's the first number — that is the current target for sustainable aviation fuel as part of all aviation fuel being sold in the European Union. So it's basically a blending mandate — 2% sustainable needs to be blended in. That's in place since 2025, expected to rise to 6% by 2030, and then 20% by 2035, and then eventually it will go up to 70%.
Now, how realistic is that? If you look at capacity that is currently online and planned, then we think that the 2030 target is very much realistic. The 6% can be achieved. 2035, the 20% is more ambitious, but there's more time left still, so I think that would still be achievable. Now where it gets a little trickier is on a sub-target, because the target that I mentioned is just the overall — but there's a sub-target for synthetic fuels. So the overall target can be reached largely by fuels based on biological feedstock, but the synthetic fuels target has to be done without biological feedstock. So what that does is combine green hydrogen with mostly CO2 that is captured in a carbon capture system, creating kind of a syngas from that, and then using something like a Fischer-Tropsch system to turn this into a liquid fuel.
Now for that, there is currently no target in place — so the 2% that are in place at the moment can be reached by 100% biofuels. However, in 2030, 1.2% of all the aviation fuel has to be synthetic fuel, increasing to 5% by 2035 and apparently 35% eventually. And I think that is very, very ambitious to say the least, because that technology is really in its infancy — it's in its pilot stage and research stage, really. We don't see any large-scale deployment of this. So even the 1.2% planned for 2030 looks very, very ambitious. The 5% for 2035, even that, because it's less than ten years away, and as we're seeing no large-scale deployment yet, we don't know if the technology works on a large scale. So this seems extremely ambitious. So what I would expect is that some of those goals may be made more flexible in the future, but we'll have to see.
Shaheen Chohan (26:10):
So beyond sustainable aviation fuel, are there any sort of new emerging pockets of capital investment that you're starting to see — some of what we call trending sectors, that you think could be good opportunities for folks servicing the biofuels market?
Josef Murr (26:28):
Yeah, in addition to sustainable aviation fuel, we also see investment towards co-processing. This is kind of a nice or light type of investment that can be tied in very easily with your existing infrastructure. You basically take your existing processing units for crude oil, like hydrotreaters or crackers, and you do some upgrades on them, and then basically enable them to co-process — typically 10 or 20% of biological feedstock alongside the crude oil. And yes, this would create a lot of opportunities for companies to get involved in projects. So those projects also come with pretreatment units that are necessary, blending facilities, control systems and all that is required — so creating also more maintenance opportunities.
Then also we see hydrotreated vegetable oil, or HVO production — mainly HVO diesel. And that could be just as important as sustainable aviation fuel, because that is again for all your long-distance road transport or your industrial diesel needs — that could be met with those units in the future.
Shaheen Chohan (28:02):
So a lot of what I'm hearing is a lot of the investments that we have been seeing associated with decarbonization have been on the bio-feedstock side of the process. What technologies are you seeing being deployed and invested in to support this decarbonization journey?
Josef Murr (28:15):
Yeah, so first of all, when we talk of decarbonization, we cannot only talk about the fuels that are produced — you can also decarbonize your processes, and there's a lot of smaller projects around process decarbonization. So we're seeing, for example, waste heat recovery systems being installed to replace some of the natural gas you're burning in your boilers with waste heat that is there anyway. Then we might see just installation of advanced control systems — even that can help you minimize your energy needs and maximize your efficiency, plugging all those smaller leaks and gaps you're having, to prevent methane emissions. So a lot of those kinds of smaller projects that can relatively quickly and relatively cheaply be done.
Refineries are also investing in low-carbon hydrogen production. We're seeing some movement now on the green hydrogen projects — Shell is currently building a 100-megawatt unit in Germany, and BP is also building a 100-megawatt unit, also in Germany. We're seeing also some refineries planning to invest in carbon capture systems — those are mostly targeted at the steam methane reformers, which would be your traditional production unit for hydrogen, or "gray hydrogen" as it is now known, simply because that unit has a lot of CO2 emissions. This would basically then create the blue hydrogen.
Now, with those carbon capture projects, the problem is that they do rely on the availability of the associated infrastructure also, because you cannot just capture the carbon — you need to do something with it. Now, technically you can use some of it to create those synthetic fuels that we already mentioned, but the majority will have to be safely stored somewhere eventually. So if a refinery is planning that type of project, but there's no infrastructure available, then what happens typically is those projects get delayed and delayed. But we do see some movement also — again, in the Netherlands, for example, there's the Porthos project. So Shell is currently building a carbon capture system that will feed its carbon into this Porthos infrastructure, and it will then be stored under the North Sea.
Then again, we already mentioned the synthetic fuels projects — they are just in their infancy at the moment, and we don't see any large movement there yet, but some refineries have plans in principle for those. A similar story with — we have tracking a few projects about plastic recycling initiatives from refineries, where they try to create a pyrolysis oil from waste plastic. And in fact, OMV in Austria has two of those units already in operation, but they are small pilot units. They also have a plan for a larger industrial-scale unit, but again, this gets pushed out and pushed out. And the problem with many of those newer technologies seems to be that they work in principle in the laboratory, but the scaling up seems to be the issue.
Shaheen Chohan (31:46):
In conclusion, really, European refiners have all been struggling for quite a while from a cost perspective. What do you think the outlook for refiners is across Europe, bearing in mind, as you just said earlier on in the discussion, a lot of new capacity coming online from Asia — we have a lot of cost-advantaged production in the US and also the Middle East. What do you think the outlook is, and what could we see in terms of spending going forward for European refiners?
Josef Murr (32:17):
Now, there is still a good case to be made for European refiners. They still have one very large advantage over any competitors — and to say it as an estate agent would probably say it: it's location, location, location, right? They are where the consumers are. Europe is still a very large market for products from a refinery and will remain so for a long time. Also, those refineries are at strategic locations where there is all the required infrastructure in place — like your ports, your pipelines, your storage facilities. All of that can also be easily adapted for a low-carbon economy.
Now we have seen the supplies become scarce — the latest one now with the Middle East conflict, around aviation fuel especially — and seeing some airlines already canceling flights from their summer schedules, large airlines like Lufthansa or KLM. So if you would have more production within Europe, that could certainly help to prevent those kinds of issues. For the refineries to remain relevant, I think they will have to adapt — so they will have to start, or continue if they have already started, to decarbonize their processes as well as the products they are producing. And if they're doing that, they probably will remain relevant for many years to come.
Shaheen Chohan (33:57):
So that brings us to the conclusion of our podcast. A very big thanks to you, Josef, for sharing your insights and perspectives today — very much appreciated. And a very big thanks to all of you who've managed to tune in. If any of you have any further questions about any of the topics that were discussed today, then please do reach out to myself or Josef via the contact details that you can see here. All of the data and insights generated during the discussion are according to Industrial Info Resources data, sourced from our global Market Intelligence Project database. And finally, a big thanks to all of you who have joined us today. I hope we have helped you all better navigate some of those currents of change we're seeing.
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*This episode is brought to you by Industrial Info's Latin American Office in Argentina.