While refiners are reading the writing on the wall and taking steps to switch some of their operations to, for example, biodiesel or ethanol production, Europe’s policymakers seem to be playing catch-up. Mark Williams reports.
Even as governments around the world hasten to bring in decarbonisation policies, the real world continues to move ahead at a faster pace.
The COVID-19 pandemic has taken out as much as 6% of global oil demand that may never be replaced as the upstream, refining and downstream sectors all begin to reconfigure their assets and investment strategies for a new era in which non-hydrocarbons gain increasing market share in electricity generation, municipal energy, industrial use and transport.
In the short term this means a number of older, simpler oil refineries – especially those which rely on a narrow crude slate – face closure as refiners develop sites which can be upgraded to produce hydrogen, ammonia, LPG and LNG, methanol or ethanol. The IEA suggests that around 14% of refinery capacity in developed economies faces lower utilisation or closure.
It is possible that the IEA is underestimating the march of progress. In the US, as we reported last week, 3% of refining capacity has been lost since July 2020 and several refiners are already taking steps to switch oil refineries to biodiesel, ethanol or waste oil processing.
Since then we have learned that Renewable Energy Group Inc is to expand its 90 million gallon per year biodiesel plant in Louisiana to 340 million gallons per year, spending $825 million to do so. The expansion is set to be completed in 2023. REG already operates 13 biodiesel plants in the US and Europe, producing nearly 0.5 billion gallons of renewable fuels in 2019.
Evidence of change is also emerging in Europe. Bp, Eni, Repsol, Saras and Total have all announced plans to grow biofuel capacity by a factor of up to five by 2030 while reducing mineral oil refining capacity.
Total converted its La Mede plant near Marseille to biodiesel in 2019. It has now decided to shut Grandpuits in France from March 2021 due to the expense of repairing the Ile-de-France pipeline which feeds the refinery. It will be converted to bioplastics and biofuel production. Subsidies for bio fuels mean that, just as in California, in France a litre of biofuel is more profitable for a refiner than a litre of standard diesel.
Neste, the self-proclaimed world’s leading provider of renewable diesel and sustainable aviation fuel, is reported to be closing its 58,000 bpd plant at Naantali which focuses on diesel, solvents, bitumen and gasoline. It has just announced a joint venture with Unilever to recycle plastic packaging that is currently incinerated or sent to landfill and convert it into a synthetic plastics feedstock called Plaxx.
In Belgium, Gunvor has begun to mothball its 107.5 k bpd refinery, with management telling reporters in June this year that it is uncertain whether the site will become economically viable in the near future. A lack of demand in western Europe for refined products is matched by higher global demand for mid-sulphur feedstocks on which the plant relies; the increasing competition is pressurising cashflow beyond tolerances.
On 14 September, the European Commission decided to extend tariffs on US biodiesel for up to 15 months instead of letting them lapse as previously planned. In 2009 the EU placed duties of up to €409.2 per metric tonne on US biodiesel due to the US blenders’ tax credit. The duty was renewed in 2011 and again in September 2015.
The protective measures do little to enhance renewable fuels consumption in Europe. The revised Renewables Energy Directive (RED II) targets a 14% share of renewables in transport. Conventional biofuels, such as bioethanol or biodiesel, are capped at 7% by 2030, while 3.5% is reserved for so-called advanced biofuels. But these targets remain assumptions as auto sales remain vastly biased towards traditional diesel and gasoline engines.
The European Parliament, debating the EU’s €750 billion recovery fund, voted on 12 October to exclude fossil fuels from support. Still, Zlatan Szabo, a sustainability consultant for Ethanol Euorope, critiques EU policy as ineffective. ‘It is obvious that the EU policies adopted thus far will not deliver transport decarbonisation. These policies include ambitious aims of electrification of transport, emission standards of cars, a mandate for advanced biofuels and a cap on conventional biofuels…It is clear, however, that without effective policies to ensure that oil is actually reduced, the EU will not deliver on its climate promise.’