Refined Products, Crude Oil, Gasoline, Diesel-Gasoil
March 25, 2025
Survival of the fittest: European refiners jostle to outlast closures
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HIGHLIGHTS
Falling refining margins trigger first European shutdowns
Early plant closures could prop up margins for survivors
Concern over political support for higher clean fuel prices
For years, European refiners have been preparing for a cull. Now, as the first shutdowns have begun, investors are betting on which sites can survive, hoping for a brief bump in margins in reward.
As Europe has pushed to decarbonize, the outlook has clouded for its fossil fuel business.
European gasoil demand peaked in 2017, while the electric vehicle uptake has sapped gasoline consumption. From 2025, total oil demand on the continent is set to fall into structural decline, according to S&P Global Commodity Insights forecasts.
At the same time, high energy prices and rising carbon taxes have supported running costs, adding to anxiety over new low-cost competitors in the Middle East and Nigeria.
"Even though gross margins aren't that bad, the cost structures involved for businesses have gone up. There's been real inflation in wages ... and the cost of carbon is a lot higher now," said Jay Gleacher, Vitol's Investment Director, at the FT Commodities Global Summit in Switzerland March 24.
Based on surplus capacity alone, the International Energy Agency sees at least 1 million b/d of European refining capacity at risk of closure by 2030, while analysts say actual figures could be higher.
As margins have normalized from the shock of the Russia-Ukraine war, 500,000 b/d of capacity reductions have been announced so far. Eni's Livorno stopped crude processing in 2024, while the UK's Grangemouth will close in Q2.
Two German sites, Shell's Rheinland, and BP's Gelsenkirchen, are also expected to downsize this year.
Survivalist hopes
As refiners with long-term ambitions in Europe pump investment into future-proofing key sites, many hope that capacity reductions provide some breathing space for an otherwise challenging margin outlook.
"As some more of the announced closures go through in the next year or two we think that's relatively constructive for the remaining refineries who are strong enough to survive," Gleacher said.
"The key is surviving long enough to implement your transition and be the most competitive refinery that you can be," said Ruth Herbert, Managing Director of Business Development and Strategic Initiatives at Essar Energy Transition, also speaking at the conference.
EET, which owns the UK's Stanlow refinery, plans to invest $1.2 billion in carbon capture and storage, blue hydrogen, and electrification to cut its emissions 95% by 2030.
It hopes a lower carbon compliance bill will help it serve lasting oil demand in sectors like aviation, but it must first see out three-five year lead times for projects.
Spanish refiner Moeve, another major renewables investor, has banked on huge green hydrogen projects to curb its natural gas use, and plans to start building southern Europe's largest electrolyzer this year.
Antonio Joyanes, the company's EVP of Energy Parks, agreed that an early wave of closures could provide immediate margin relief for survivors.
"As soon as the throughput goes below 80% in Europe, some refineries will start closing, and only those competitive enough will remain in the market," he told delegates at the FT Summit.
Last man standing
Surviving the new refining landscape will rely on long-term transition strategies, flexible assets, and deep pockets, experts say.
As international oil companies have shed European refineries, traders Vitol and Trafigura have acquired plants in France and Spain.
With the right assets, traders say they are poised to compete strongly in the sector, with the ability to leverage global trade networks to optimize operations.
Large-scale refineries are typically more cost-effective, while traders have focused on coastal sites with the flexibility to process a range of crude types. Increasingly, refiners are also considering AI and workforce reductions to deliver savings, said Moeve's Joyanes.
Mediterranean refineries have been among the first snapped up by traders, while stakes in sites like Germany's MiRo, Schwedt, and Gelsenkirchen refineries have yet to find takers. However, Vitol's Gleacher said Northwest Europe will continue to play an important role serving inland hubs.
"There's a degree of opportunism in the fact that those were the ones for sale. Notice that Shell and BP's Rotterdam refineries are the ones they don't want to give up," he said on the sidelines of the event.
Smaller independents acquiring refineries are unlikely to last more than "a couple of years" Gleacher said, citing prohibitive costs of long-term transition plans.
"Hopefully what will emerge either through new partnerships or M&A consolidation is companies that actually have the capital and the balance sheet to fund these investments," he said.
Petrol politics
For now, refiners are fronting the costs of transitioning their businesses. Yet ultimately, they are relying on being able to pass on higher costs to consumers.
ETS compliance costs are expected to rise from 60-80 cents/b this year to $3-$4/b by 2035, according to Commodity Insights forecasts.
EU renewable fuel mandates promise to support demand, with measures obliging suppliers to deliver rising proportions of sales with low-carbon supplies.
"In the domestic [Spanish] market, we have forced the customer to pay for around 10% biofuel content in the gasoline or the diesel, which is 3 times the prices of the fuel and they pay for it," said Moeve's Joyanes.
Others are more skeptical over governments' resolve.
Graham Hoar, Global Head of Clean Fuels & Chemicals Advisory at Poten and Partners, warned that Europe's recent push for stronger military spending could curb appetite to foster higher energy prices.
Gleacher agreed that political uncertainty has eroded timeline confidence, despite a clear "direction of travel."
"If you see the elections in Germany, or some of the changes in Scandinavia where really ambitious targets were set and then scaled back, these things all impact the market," he said.