Europe Is Now Seriously Rethinking Its Oil Refinery Phase Down
OilPrice.com · Alex Kimani ·
The EU is moving to protect its remaining refining capacity, balancing energy security, military readiness and industrial competitiveness against its ambitious climate goals.
Over the past couple of decades, Europe has pursued some of the world’s most ambitious clean energy policies, aiming to become the first climate-neutral continent by 2050. Hardly surprisingly, Europe is now further along the clean energy transition compared to its western peers, with renewables accounting for roughly half of the continent’s power mix compared to about 26% by the U.S. However, Europe is now being forced to reckon with its decision to ditch some of its fossil fuel assets as yet another global energy crisis unfolds just years after the 2022 energy crisis. Over the past 20 years, Europe has aggressively phased down its oil refineries, shutting down about a quarter of its plants and reducing processing capacity by roughly 10%, with EU policymakers anticipating that the green transition would steadily shrink domestic demand for gasoline and diesel. A lot of the attrition was driven by onerous environmental rules and harsh penalties for non-compliance. To wit, under the EU Emissions Trading System (ETS), refineries face a declining cap on carbon emissions and receive fewer free pollution allowances over time, sharply increasing the cost of operating their facilities, while stricter environmental rules and pollution limits under the Industrial Emissions Directive (IED) mandate expensive retrofits and continuous compliance costs for heavy polluters, negatively impacting oil refining margins.
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Consequently, the continent has been forced to rely more heavily on imported refined products, exposing it to geopolitical risks. The Iran and Ukraine wars have led to a spike in oil and gas prices, with EU Energy Commissioner Dan Jørgensen terming geopolitical instability and the prolonged diesel squeeze a “wake-up call” for the bloc. European natural gas prices shot past €100 per megawatt-hour on Friday, the highest level since Russia invaded Ukraine in 2022, as Middle East disruptions choked off LNG supplies through the Strait of Hormuz and on fears of a renewed hot war after the U.S. midterm elections. The energy shock has added more than €100 billion, or about $111 billion, to the continent’s import bills, exposing the vulnerabilities of dismantling domestic fossil-fuel infrastructure before clean alternatives were ready to handle a worst-case scenario.
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