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As they continue their recovery from the double shock of COVID-19 and the war in Ukraine, European refiners face new pressures from global competition and an ever-changing policy environment.

We sat down with Shell Catalysts & Technologies experts, Paul Ceccato – Market Manager Refining and Chris Egby – Market Manager Energy Transition/Decarbonisation, to chat about how European refiners can remain competitive in an uncertain market.

Chris: The competition on the global stage is increasing, and it’s something that European refiners need to take seriously. Around the world there are assets that are newer, bigger and more efficient than European facilities. They can make things more cheaply, which makes them more competitive. So, the reality is that international competition isn’t going away – in fact, it’s only going to increase.

Paul: Absolutely more competitive. These newer international assets are designed to be more efficient with better reliability, longer cycle lives and less downtime. As a result, they can be more productive and generate higher yields for lower cost. To compete, European refiners need to invest in strategic areas that can help shift competitive advantage back towards Europe.

Chris: Energy efficiency and reliability would be good places to start. These are low-hanging fruit and should be a top priority for all European refiners. Both are low-cost routes that can help refiners improve margins and, at the same time, lower the carbon intensity of operations. Significant efficiency improvements can be achieved by, for example, improving energy transfer between units, upgrading heat pumps and reducing steam leaks.

Paul: Another would be flexibility. There’s so much market volatility that making your supply chain, feeds and product as flexible as possible will significantly help. If you have flexibility, you can manage volatility. But, if you don’t have flexibility, you’re at the mercy of volatility.

Chris: That’s exactly right, Paul. A refiner that is locked into a certain type of crude will have a static product slate and may not be able to adapt to market and regulatory changes. This could put them in a significantly weaker position than refiners with feed and product flexibility.

Paul: Most recently, it has been the war in Ukraine, which has upended European oil and gas markets, sent prices soaring and left European refiners scrambling for alternative sources of fuel and crude feedstocks.

Chris: Indeed, we were just recovering from the economic shock of COVID when Russia invaded Ukraine, so it was like a double hit. As a result, oil and gas supply chains have had to be completely rerouted, which has had a massive impact.

Paul: It comes down to flexibility again. Positioning for reliable operations during volatility delivers energy security.

Chris: This is true. Strategically, if you are one of a few refiners in a country, you want to position yourself to be the one that the country sees as its source of energy security. Having the flexibility to process different crudes at a high efficiency and with the lowest energy and carbon intensity is key to this.

Chris: Yes, I would say Shell Energy and Chemicals Park Rotterdam. Here, Shell is upgrading the facility to enable it to process a wide range of feedstocks such as biofuels and, potentially, plastics. This means we can better adapt the product slate as supply and demand dictates.

Paul: They should look for ways to extract maximum value from existing assets. Again, it’s all about flexibility. As supply and product markets shift, having the technology to switch to alternative feedstocks and produce different products will be a big advantage. You certainly don’t want idle assets.

Chris: Above all, refiners need to make sure that whichever technology they invest in will generate a suitable return.

Paul: Regulatory uncertainty makes it very difficult for refiners to evaluate the future value of current and planned investments. This means that the decision to invest, and where to put that capital, is complex.

For example, as regulation moves us away from certain feedstocks, investments (or planned investments) in facilities to process these feedstocks may lose value. With the regulatory landscape, particularly in Europe, often seeming like a moving target, knowing which feedstocks and technologies to invest in is becoming increasingly difficult.

Chris: There are plenty of technologies that can be implemented today with relatively small investments, which can help improve flexibility, efficiency, performance and yields.

For example, technologies that can be implemented with little extra cost – what I’d call low-hanging fruit – are those that provide the flexibility to co-process biomolecules in hydroprocessing units. Co-processing can help boost margins and requires minimal changes to facility configuration.

Paul: I agree. Using existing assets to process alternative biomolecules at a premium is a no-brainer. But, refiners need to ensure that the different feedstocks are available, otherwise they’ll end up with idle assets, which isn’t good for profitability or longevity.

I would also add technologies that can improve energy efficiency and performance to that list. For example, fractionation technologies and reactor internals can help improve yields, catalyst utilisation and overall asset performance, whereas technologies such as passive heat exchangers can significantly improve energy efficiency. Refiners should also consider water conservation technologies that increase heat exchange and reduce steam demand– we don’t talk about such sustainability measures enough, but we should.

Paul: They’re crucial. As we start to move away from larger, bottom-of-the-barrel molecules, the ability to convert them into lighter molecules will become increasingly important. Moreover, as demand grows for biofuels, such as sustainable aviation fuel (or SAF), having facilities to convert biomolecules can be a great advantage. So, technologies such as hydrocracking and boiling point shift increase in relevance. What do you think, Chris?

Chris: Absolutely. They’re low-capex, high-return opportunities that can be implemented by revamping existing assets or repurposing idle equipment.

Paul: Conversion technologies such as hydrocrackers add to the flexibility story as refiners can vary conversion as the market dictates. Importantly, they create the capability when you need it to pivot or capture new opportunities.

Chris: Hydrogen and CCS are not necessarily “no brainers”, but may be important considerations for facilities in certain locations. For example, refineries located in industrial clusters, such as those seen in the �鶹��ý and north-west Europe, will likely want to consider them to future-proof operations in strict regulatory jurisdictions.

Paul: Hydrogen is a challenging one at the moment because the current cost of renewable grades of hydrogen remains high even if we see some projects in Europe under construction, such as Shell's 200-MW Holland Hydrogen 1 electrolyser in the Netherlands. But, as regulations tighten, decarbonised hydrogen – that is, hydrogen produced from natural gas combined with CCS, often referred to as blue hydrogen – may be something that refiners must consider in the future.

Chris: Indeed, decarbonised hydrogen may offer a cost-effective alternative until the cost of renewable hydrogen drops. However, because of the cost and complexity of capturing and sequestering carbon dioxide, it’s unlikely that a refinery will invest in its own decarbonised hydrogen plant. Instead, if the plant is located near other carbon emitters, then there may be options to plug into existing, or collaborate in developing new, CCS infrastructure – for example, the Northern Lights project in Europe where Shell is collaborating with TotalEnergies, Equinor and the Norwegian Government to develop CO₂ transport and storage infrastructure.

Chris: It is. Collaboration can help accelerate innovation, investment and deployment of technologies. All refiners will be hit with stricter regulations at some point, so, where possible, they should start working together sooner rather than later.

Paul: Collaboration among the hard-to-abate sectors – for example refining, petrochemicals, cement and steel – can help reduce some of the financial burden and risk associated with decarbonisation projects, especially hydrogen production and CCS.

Chris: European refiners want more consistent policy. In the EU, there seems to be a “scattergun” approach to policymaking, with multiple pieces of legislation sometimes overlapping and saying different things.

Paul: I agree. As I mentioned previously, EU regulation can sometimes seem like a moving target. This creates an environment where everybody is hesitant to make decisions because of fear of regret. To make long-term investments, refiners need a stable regulatory environment so they don’t suddenly face the prospect of their new investments being obsolete in five or ten years’ time.

Paul: Of course. Having stricter policy can work to the advantage of European refiners because it has the power to differentiate them from the global market, particularly in markets for more sustainable products.

For example, the biggest competition for Europe will come from the Middle East; however, countries there are focused on refining conventional crudes. As mandates for lower-carbon, bio-based products increase, European refiners will be best placed to pick up this demand.

Paul: Exactly. Moving forward, stricter European regulations can give refiners a head start in the market for sustainable molecules.

Chris: And here’s another reason to be optimistic, too: In 2026, the EU’s carbon border adjustment mechanism comes into force, which places a tariff on carbon-intensive products imported into the EU. This could be really significant because it will increase the cost of importing refined products from the Middle East and other carbon-intensive regions and help shift the balance in favour of European refiners.