As 2025 begins, Germany’s refining sector faces a complex landscape shaped by the events of 2024. The geopolitical tensions stemming from the Ukraine conflict and Middle East unrest have left lasting impacts on energy markets. Domestically, Germany’s push for decarbonization, coupled with stricter EU regulations, has altered market dynamics. Upcoming critical events, such as Trump’s inauguration and German elections in Q1 2025, are expected to significantly influence global and national energy policies.
This analysis is based mainly on two primary sources: Statistical Report 2024 (FuelsEurope) and World Energy Outlook 2024 (IEA) and S&P Global insights.
Key Challenges and Market Trends
- Aging Refining Infrastructure and Falling Margins
Much of Germany’s refining capacity requires significant modernization. Rising operational costs, including EU Emissions Trading System (ETS) prices increasing to €90/tCO2 in 2024, exacerbate financial strain. Reports indicate that some refining assets are operating at reduced efficiency levels due to delayed investments. Non-EU competitors benefiting from lenient environmental regulations intensify pricing pressures. Owners such as BP (Gelsenkirchen, Lingen), Shell (PCK Schwedt), Exxon (MiRO) are downsizing or looking for ways out of their refinery operations, further reflecting market stress.
- Declining Fossil Fuel Demand
Fossil fuel demand in Germany has dropped by 5% since 2019, driven by the rapid adoption of electric vehicles (EVs), which accounted for 22% of new car sales in 2024. This trend mirrors broader EU decarbonization policies but contrasts with global oil product demand, which rose by 1.8% in 2024 as transportation sectors recovered.
- Renewable Energy Opportunities and Challenges
Germany’s push for renewable energy offers both opportunities and hurdles:
- Biofuel Market Disruptions: Local biodiesel producers faced challenges in 2024 due to fraudulent UER certificates and mislabeled biodiesel imports, leading to GHG quota oversupply and collapsing prices.
- Sustainable Aviation Fuel (SAF): SAF demand surged, driven by EU mandates and decarbonization goals. A 20% growth is expected in 2025, presenting lucrative diversification opportunities for refiners.
- Hydrogen and Synthetic Fuels: Investments in hydrogen technologies position Germany as a leader in the field. Expanding these projects can mitigate fossil fuel demand decline and boost energy independence, as highlighted by ongoing hydrogen economy initiatives.
Strategic Factors for 2025
- Political and Regulatory Changes
Germany’s new government is expected to prioritize balancing industrial competitiveness with green energy goals. Potential revisions to the EU Energy Taxation Directive may further incentivize biofuel production while increasing fossil fuel costs.
- Geopolitical Pressures
Uncertainty around U.S. energy policies under Trump’s administration, combined with inflationary pressures, could reshape transatlantic trade and amplify challenges for Germany’s refining sector.
Infographic Insights: European Refining Sector
Recent insights from S&P Global Commodity Insights highlight significant transformations in the European refining sector. Since 2007, 2.9 million barrels per day (b/d) of refining capacity have closed, with 360,000 b/d set for biofuel conversion by 2027. Margins diverge across products like gasoline and jet fuel, while crude oil runs are forecasted to halve by 2050, emphasizing the sector’s urgent need to adapt to greener fuel demands.
As a Conclusion
Germany’s refining sector stands at a pivotal moment. While regulatory and market pressures present significant challenges, renewable energy investments and modernization initiatives offer a way forward. Collaboration between policymakers and industry leaders will be essential to secure a sustainable, competitive, and decarbonized energy future.
