Oil refineries in Europe and the US are facing a wave of closures due to continuing slump in demand, stricter environmental regulations and overseas competition, prompting some owners to pivot towards an easier alternative - biofuel production.

Total La Mede biofuel refinery
Total converted the La Mede refinery in southern France into a biodiesel plant in 2019.
The coronavirus pandemic had a devastating effect on oil demand with some producers, including BP, saying that it may never return to pre-crisis levels, meaning the pressure to close refineries has become greater.
The International Energy Agency (IEA) released a report recently saying that around 14% of refining capacities in advanced economies would be facing "the risk of lower utilisation or closure" by 2030.
That share could grow to as much as 50% by 2040, the IEA said, under an accelerated transition from fossil fuels to electric vehicles.
Closing down refineries is an expensive process and requires the dismantling of heavy equipment and pipelines, as well as land remediation.
This had lead to many owners opting for an alternative path, including the conversion of refineries to import terminals, putting them to different uses or, in several cases, switching to cleaner biofuels through the processing of vegetable oil and waste oils.
BP, Total and Eni have all outlined plans in recent month to grow their biofuel capacities by two to fivefold by 2030 while reducing their global oil refining footprints.
The switch is part of companies’ strategies to radically reshape and grow renewables and low-carbon businesses.
Other European refiners including Repsol and independent Italian refiner Saras also plan to increase their capacity.
Rob Turner, partner at PWC specialising in the energy sector, was quoted by Reuters as saying that refinery conversion “makes a lot of sense”.
“It allows plans to play a role in the energy transition, creates long-term value and mitigates the costs of a full shutdown and site cleanup," he said.
While these challenges are not limited to refiners in developed economies, the problem is particularly acute in Europe where consumption on the continent has been in steady decline for some time, with governments at national and EU level pushing for the acceleration of cuts to carbon emissions.
Already, three refineries in Europe have shut down in the wake of the coronavirus epidemic - Total’s Grandpuits plant in northern France, Neste’s Naantali plant in Finland and Gunvor’s Antwerp refinery. Total converted the La Mede refinery in southern France into a biodiesel plant in 2019.
European biofuel production capacity is set to increase from its current 3 million tonnes to some 8 million tonnes annually, Joshua Stone, an analyst at Barclays, was reported as saying by Reuters.
Neste, a Finnish refiner which has invested heavily in renewables and biofuels, has seen its shares rocket in recent months - gaining over 55% this year so far - with those of traditional refiners and energy firms dropping sharply.
Across the Atlantic, in the US, biofuel demand is also set to grow rapidly in the coming years due to new regulations on fuel quality in states such as California. It is set to reach 2 billion gallons per year by 2025 from 21.4 million gallons currently consumed every year, according to Morgan Stanley.
There are currently eight projects totalling over 1.1 billion gallons per year of capacity being constructed with targeted completion dates in the next five years. Refiners including Phillips 66 and HollyFrontier Corp have also announced plans to ramp up production.
The gap between demand and supply in the United States could lead to a supply shortfall of about 450 million gallons per year, meaning it will need to import biofuels, Morgan Stanley said.
With biofuel demand growing sharply on both sides of the Atlantic, prices for feedstock - vegetable oil and oil produced from waste - will likely increase.
“An increase of raw material prices is inevitable over the period with so many new biofuel facilities competing for similar sources of feedstock,” Stone said.
Profit margins for producing biodiesel will likely erode as a result but are expected to remain robust due to strong demand and a very high starting point at the moment, he said.
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