A path to cleaner fuel in Europe
During the last decade, climate change has become a key concern for Europe and the rest of the world. Human activities have increased greenhouse gas emission building up in the atmosphere and warming the climate1. In order to limit the climate change, a part of the solution would be to reduce fossil fuels2 and enhance alternative and sustainable fuel.
Driven by the European Union, a new ambition has been set concerning the renewable Energy Sources consumption, which are included in the RED II directiv3. The overall European Union target for Renewable Energy Sources consumption by 2030 has been set to 32% and within the 14% transport sub-target, a dedicated target is given for advanced biofuels produced from renewable feedstock4. Regarding the aviation and maritime sectors, fuels are not subject to any obligation. However, the European Commission is currently reflecting in this regard and is drawing up targets for airlines to use a minimum share of sustainable fuel5. As per the International Energy Agency, the biofuel consumption is expected to triple in 2030 compare to the production in 20196.
The transition in the transport sector is led by the development of electric vehicles. Despite significant help by some European governments providing grants and incentives, the market penetration remains relatively low. The majority of European new cars are still powered by gasoline or diesel motors, as total electric car registrations reached only 3.5% in 20197.
The development of biofuels, specifically drop-in biofuels8, could be a complimentary solution to the reduction of the greenhouse gas emissions, especially for long-distance transport, as the electric battery is not viable in this particular case. Drop-in biofuels are similar to fossil fuels, and fully compatible with the current petroleum infrastructure. For these reasons, drop-in biofuels are becoming a viable option for aviation, marine and long-distance trucking sectors and shall be considered during the complete light vehicle fleet turnovers into electrics.
Being less competitive due to aging asset9, European refiners are currently struggling to compete against modern and low-cost Middle-East and Asian assets10. In collaboration with the European Union desire to be carbon neutral in 2050, the European refining industry shall integrate renewable fuels in their oil refineries, by taking advantage of existing infrastructure for the production and distribution of fuels support. The retrofitting of existing refineries would consequently be a less capital-intensive alternative by reducing capital costs, construction time and risk.
Additionally, Covid-19 has also affected the European transport fuel market11. While it is still difficult to establish at which level the demand will be restored, COVID-19 has been an accelerator, but not the trigger, of the European refiners’ problem of overcapacity. Some refiners have already decided to definitively or temporarily shutdown European refineries12.
This article aims to raise awareness that European refiners can support the reduction of greenhouse gas emission in the transport sector. The primary objective is to analyse how the European refining industry can switch to renewable fuel production, while maintaining their assets. In order to answer this question, the article is structured in three parts: an understanding of the possible retrofitting to produce renewable fuels, a case study of the first European refiner moving to renewable fuel production and a potential competitor for oil refiners in this field. Finally, a conclusion is given with some recommendations.
Integration of renewable fuels within oil refineries
Looking into the feed, the main difference between renewable feedstocks and fossil feedstock are:
- Lower hydrogen and sulphur content compare to fossil feedstock
- Higher contaminants
- More difficult operating conditions
Several options are available for refineries to process biomass-based intermediates as shown in the figure below. A direct processing with crude oil is not possible due to the high oxygenate component (insertion point 1). Available options consist of using existing assets to co-process crude oil and bio-oil (insertion point 2) or to build new process units to generate 100% renewable diesel from bio-oil (insertion point 3).
![Co-processing bio-oil](https://files.europetro.ru/img/media/90/img-1.png)
Figure 1 Co-processing bio-oil with crude oil integration with existing refining infrastructure13
The renewable feed insertion point for co-processing will be decided by refiner based on the different potential risks and in the composition of the renewable feed, as in some cases, some form of cracking will be required to create shorter molecules that comply with the specifications of the desired products. Renewable feed insertion could be done in the fluid cracking cracker14 (FCC), the hydrocracker15, and the hydrotreater16.
Co-processing17 enables a simple and efficient integration of renewable fuel production and provides flexibility needed for the refiner as it is not constrained to issues from stand-alone conventional renewable fuel such as constant feedstock availability and regulatory variability. By inserting the renewable feedstock in the refining unit, the product will contain both fossil and renewable fuel (drop-in biofuel) directly at the refinery storage and will not be subject to the same biofuel blend as more conventional bioethanol or FAME biodiesel. The process is estimated to provide a higher energy content and Cetane number, thus, an overall improved fuel quality in contrast to conventional bio component blending18.
In Europe, it has been asserted that companies such as Galp, CEPSA, Preem, ConocoPhillips and Repsol are co-processing renewable feedstock in their refineries19.
The other possible solution for European oil refiners would be to generate 100% renewable fuels, thus, to use a stand-alone process known as HVO20 (hydrotreated vegetable oils) commonly referred to as renewable diesel and hydroprocessed esters and fatty acids (HEFA) which are produced via hydroprocessing of oil and fats. Compared to petroleum diesel, renewable diesel has better fuel quality and, consequently, have lower emission of hydrocarbons and carbon monoxide. The greenhouse gas emissions of HVO diesels are significantly lower than petroleum diesel with around a 50% reduction in greenhouse gases21.
HVO renewable fuels22 can be produced by either investing in stand-alone facilities or by retrofitting existing refineries. The second option, preferable for European refiners, would be a less capital-intensive alternative by reducing capital costs, construction time and risk. Currently, examples in Europe are ENI Venice and Total La Mède. The reconfiguration of the existing units in Venice significantly accelerated the completion of the project and considerably reduced the required investment, which was estimated at one-fifth of that needed for a new grass root unit of the same capacity23. A large number of traditional oil refineries in Europe are suitable for HVO conversion, as they possess hydrotreaters, which can be reused. These hydrotreaters were originally designed for removal of sulphur and nitrogen from fossil feeds by hydrogen treatment.
The main technologies24 currently available on the market are:
- Axens: Vegan
- Honeywell UOP: Ecofining
- Neste : NEXBTL
- Haldor Topsoe: Hydroflex
As per the figure below, Neste has been the first refiner in Europe to inaugurate its renewable diesel plant at its Porvoo refinery (Finland) in 2007. Currently, six plants are producing renewable diesel in Europe. In the past few years, and probably helped by the COVID-19 being an accelerator factor, several projects have been announced, both by refiners such as Total, Repsol, Orlen, but also by companies in the bioindustry (UPM and SCA).
![HVO type production](https://files.europetro.ru/img/media/90/img-2.png)
Figure 2 HVO type production in operation and planned
Neste: First European oil refiner moving to renewable fuel production
Neste is currently the world’s largest producer of renewable diesel (2.7 Mt of production capacities in Europe and Singapore, representing approximately 60% of the market25). Its green ambition started with a renewable diesel plant located at the Porvoo refinery (Finland) in 200726. Neste gradually invested in renewable diesel production and currently owns plants in Porvoo (Finland), Singapore (largest renewable diesel refinery in the world), and Rotterdam (Netherlands), with their renewable feedstock being about 80% of waste and residue fats and oils. The company continues its transition and is moving one-step further from conventional fossil fuel production by permanently shutting-down its Naantali refinery in March 2021. As part of their strategic plan, Neste’s Porvoo refinery will be transformed to co-process renewable and circular raw materials.
Neste does not only provide renewable diesel for transportation from their existing distribution infrastructure but also sustainable aviation fuel. The fuel is compatible with the existing jet engine technology and fuel distribution infrastructure when blended with fossil jet. In order to secure its distribution, the company delivers sustainable aviation fuel to San Francisco Airport, and has signed an agreement to provide their product with companies such as All Nippon Airlines, Finnair, KLM, Lufthansa, and major US airlines. In addition, it has invested in AFS fuel storage company to enable supply of sustainable aviation fuel at Amsterdam Airport Schiphol27. Neste’s sustainable aviation fuel annual capacity is currently 100,000 tons. With Neste's Singapore refinery expansion on the way, and with possible additional investment into the Rotterdam refinery, Neste will have the capacity to produce some 1.5 million tons of sustainable aviation fuel annually by 202328.
Furthermore, Neste aims to develop circular economy partnerships. In June 2020, Neste developed a circular economy partnership29 with McDonalds’s, the world largest fast-food chain, and HAVI, a company focused on innovating, optimizing and managing the supply chains of leading brands. HAVI will play a central role as the collector of the used cooking oil from all 252 Dutch McDonald’s restaurants. Neste will then convert this cooking oil into renewable diesel fuel that will be used as fuel by HAVI’s trucks.
![Circular economy partnership](https://files.europetro.ru/img/media/90/img-3.png)
Figure 3 Circular economy partnership between McDonald’s, Neste and Havi in the Netherlands30
Looking into their financial results, and comparing the results from their oil products and renewables products, it took a number of years (approximately 5) after the investment in HVO for Neste to see a solid return on investment. It can be noted that in 2018, while renewable products represented only 24% of their revenue (oil and renewable products included), the operating profit for renewables accounted for 84%.
![Neste performance](https://files.europetro.ru/img/media/90/img-4.png)
Figure 4 Neste performance conventional oil versus renewable products
Based on these results, we can observe an opportunity for European oil refiners to turn into renewable fuel producers and be profitable after a few years. Agreement to distribute renewable fuels, along with the development of circular economy partnership, are fundamental in the development of profitability. European policy makers will need to continue to provide a favourable strategic plan to compensate the additional cost of processing renewable feedstock, and, thus, generate additional investments by European Oil refiners.
Potential competitor for European oil refiners: Bioindustry entering renewable fuel production
European refiners seem to have a great advantage, as refineries are natural locations for renewable fuels productions. As done already by oil Majors ENI and Total, they have the possibility to transform their existing refinery into a biorefinery through stand-alone HVO production, while keeping their transport and storage infrastructure.
However, not only oil refiners are expanding their businesses through renewable diesel, the sector is also engaging for companies that are likely to provide renewable feedstock for a stand-alone HVO production. UPM, a forest bioindustry, invested 175 million of euros in the first wood-based biorefinery producing renewable diesel in Lappeenranta, Finland. The plant started in 2015 and used pulp mills coming from their plants as a renewable feedstock.
Compare to oil refiners, UPM had to create a new value chain and tackle several challenges from the renewable production that were different from their core business, such as: HVO process operation, storage, and fuel distribution. Strong from this first experience, UPM will expand their business with a new plant in Kotka, expected to produce in 2024 around 500 000 tonnes of renewable diesel per year from various renewable and sustainable raw materials. Additionally, UPM has stated in 2020 that they will invest in a biorefinery at Leuna, Germany31. The biorefinery will produce a range of 100% wood-based biochemicals which enable a switch from fossil raw materials to sustainable alternatives in various consumer-driven end-uses.
UPM is followed by another forest bioindustry company from Sweden, SCA, which has also invested in an HVO type production, with a start-up expected in 2024.
Conclusion and recommendations
Renewable energy is a relatively fast and easy option to implement in order to reduce the greenhouse gas emissions in the European transport sector. However, drop-in biofuels are not the only answer for climate change but could be, along with electricity and hydrogen, one of the solutions in the transport sector. Based on the IEA sustainable development scenario, the biofuel consumption could triple in 2030 compared to the production in 2019.
With the European refineries being in overcapacity, along with an increasing pressure from society to seek a more environmentally sustainable future, European refiners could strategically decide to aim the renewable fuel market, despite the processing of renewable feedstocks meaning entering an unknown territory.
European refiners have all the assets to transition into renewable fuel production. Refiners have experience with the transformation from raw materials to product fuels, and have extensive knowledge of fuel product distribution and markets. However, the collaboration with the renewable supplier is crucial in the case of European refiners wishing to either co-process in their existing refinery, or produce from a stand-alone HVO. Getting more sustainable feedstock is more demanding and requires the creation of new supply chains, with the supplier ensuring consistency in the quality and quantity, and reliability in the delivery. Another challenge will be at the end of the value chain: the renewable fuel products. To ensure their profitability, the development of circular economy partnership, along with agreement to provide renewable diesel to freight and transport logistics for example and sustainable aviation fuel with airline companies and/or airports shall be foreseen.
The development of drop-in biofuels will be ensured by the establishment of a necessary policy framework, which will support an increasing percentage of advances biofuels.
Hence, European oil refiners will have to adapt to this changing market and take a part to reduce greenhouse gas emission in the transport sector.
- United States Environmental Protection agency (2020). Climate change indicators Greenhouse gases
- United States Environmental Protection agency (2020). The sources and solutions: Fossil fuels
- Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources
- The contribution of advanced biofuels (the production of biofuels manufactured from agricultural and forest residues and from non-food crop feedstocks) and biogas produced from the feedstock as a share of final consumption of energy in the transport sector shall be at least 0,2 % in 2022, at least 1 % in 2025 and at least 3,5 % in 2030, while the first-generation biofuels (linked to food production) are limited to 7%.
- Hydrocarbonprocessing (2020). EU planning sustainable fuel target to cut airline emissions
- IEA (2020). Biofuel production in 2019 compared to consumption in 2030 under the Sustainable Development Scenario
- Data from the European Environment Agency
- According to IEA, Drop-in biofuels are liquid bio-hydrocarbons that are functionally equivalent to petroleum fuels and are fully compatible with existing petroleum infrastructure
- Based on BP Statistical Review of World Energy, Europe has a combined refining capacity of over 15.6 Mb/d, accounting for roughly 15.5% of global refining throughput in 2019. Due to Europe being a mature market in fossil transport fuels since decades, the European refining capacity has decreased by 10% in 10 years.
- CIEP (2017). The European refining sector: a diversity of markets?
- IEA (2020). The Covid-19 crisis and clean energy progress - Transport
- Currently, Finnish refiner Neste has decided to permanently shut-down its Naantali refinery by the end of March 2021, along with Portuguese Galp refinery in Porto. France Total Grandpuits refinery will not be restarted after turnaround and will be converted into a biorefinery. Along these permanent closures, some refiners are obliged to temporarily shut-down their refineries as the demand for fossil oil products are not yet recovered. It is the case for refineries such as: Donges Refinery (Total), Rijeka Refinery (MOL Group), Corunna and Bilbao refineries (Repsol) – Based on different press articles, but mainly S&P Global Platts (2020). Refinery new roundup: Refiners in Europe cut runs on new lockdowns
- Advancefuel (2019). Description of key European fossil-fuel infrastructures, which can facilitate the ramp-up of biomass use
- The refining process of breaking down the larger, heavier, and more complex hydrocarbon molecules into simpler and lighter molecules. Catalytic cracking is accomplished by the use of a catalytic agent and is an effective process for increasing the yield of gasoline from crude oil. Catalytic cracking processes fresh feeds and recycled feeds – Defined by the U.S Energy Information Administration glossary.
- Refining process that uses hydrogen and catalysts with relatively low temperatures and high pressures for converting middle boiling or residual material to high-octane gasoline, reformer charge stock, jet fuel, and /or high-grade fuel oil – Defined by the U.S Energy Information Administration glossary.
- Refining process for treating petroleum fractions from atmospheric or vacuum distillation units (e.g., naphtha, middle distillates, reformer feeds, residual fuel oil, and heavy gas oil) and other petroleum (e.g., cat cracked naphtha, Coker naphtha, gas oil, etc.) in the presence of catalysts and substantial quantities of hydrogen– Defined by the U.S Energy Information Administration glossary.
- Co-processing refers to the simultaneous conversion of biogenic residues and intermediate petroleum distillates in existing petroleum refineries for the production of renewable hydrocarbon fuels. In contrast to the now common blending of biofuels into the finished petroleum product, co-processing makes use of biomass within the processing of petroleum – Defined by ETIP Bioenergy
- Ecofys (2018). Determining the renewability of co-processed fuels
- Eurobserv’er (2020). Biofuels barometer
- Defined by ETIPBioenergy – HVO / HEFA
- Figure from Neste Renewable Diesel Handbook (2016)
- In a standalone HVO process, the production scheme usually involves two reaction stages and a final separation stage. In the first reaction stage, the feed is pre-treated with hydrogen to remove process contaminants, including oxygen, while in the second reaction stage, the product properties are improved by isomerization. Finally, the different products are separated based on their composition into light fuels, jet fuel and diesel.
- FuelsEurope (2020). Vision 2050: a pathway for the evolution of the refining industry and liquid fuels
- Zhang et al. (2018). Recent Developments in Commercial Processes for Refining Bio-Feedstocks to Renewable Diesel. BioEnergy Research.
- Based on Neste financial reports
- Green car congress (2007). Neste Oil Launches NExBTL Plant, new diesel line at Porvoo refinery
- Neste releases and news (2020). Neste invests in AFS fuel storage company to enable supply of sustainable aviation fuel at Amsterdam airport
- Neste releases and news (2020). Neste and Air bp to offer increased volume of sustainable aviation fuel in Europe
- Neste circular economy (2020). Turning fries into miles
- Neste releases and news (2020). Neste, McDonald’s Netherlands and HAVI enter into circular economy collaboration in the Netherlands
- UPM (2020). The construction of UPM innovative biochemicals facility starts in Germany