European Refiners Face Structural Squeeze as Oil Majors Cut Costs but Stay Bullish Long Term

Many European refineries are facing intensifying structural pressures and are being compelled to accelerate their transition toward cleaner fuels. Major international oil companies are simultaneously cutting jobs and scaling back spending to manage short-term price pressures, while maintaining confidence in the long-term prospects of oil and gas.

Refineries Shift Towards Biofuels and Hydrogen

Fossil fuel production at European refineries is increasingly challenged by stricter climate regulations and rising competition from newer, more efficient plants in Asia and the Middle East. To remain viable, refiners must pivot toward renewable fuel production. Since 2024, Europe has lost around 400,000 barrels per day of refining capacity, with five refineries closing in the past two years due to high taxation, regulatory constraints, and limited scale. Key policies — including the EU's Sustainable Aviation Fuel Regulation, the revised Renewable Energy Directive, and the International Maritime Organisation's new emission control areas — are expected to drive further declines in European petroleum product demand.

To preserve competitiveness, European refiners must manage simultaneous growth and decline. This approach includes retrofitting or repurposing facilities — for example, ENI's conversion of its 88,400-bpd Livorno refinery into a hydrotreated vegetable oil (HVO) plant — or, like Poloneks, adopting co-processing technology that blends biofuel feedstocks with crude oil. Currently, 22 European refineries have implemented similar adaptation measures to comply with regulatory requirements. Other companies are pursuing large-scale transformation projects, such as Essar Group's planned blue hydrogen plant and sustainable aviation fuel (SAF) facility in the UK.

Staff Reductions to Preserve Profitability

In 2024, Brent crude averaged $81 per barrel, with prices expected to decline further in 2025. Under sustained price pressure, international oil companies are accelerating workforce reductions and cutting capital expenditure to protect profitability and shareholder returns. Exxon Mobil plans 2,000 global job cuts; following its purchase of Hess, Chevron aims to reduce its workforce by 20% by the end of 2026; ConocoPhillips is targeting reductions of up to 25%; and bp is accelerating reductions of contract workers and office roles, affecting 6,200 positions by late 2025.

This trend has extended to oilfield services firms, with Halliburton implementing reductions of 20% to 40% in certain business divisions due to weaker drilling activity and rising costs.

Some majors are also scaling back investment. TotalEnergies has announced plans to cut annual capital expenditure by $1 billion over the next four years. These cost-control measures are driven largely by two imperatives: sustaining shareholder dividends amid low oil prices and ensuring that recent acquisitions generate synergies that increase combined corporate value. Recent examples include Exxon Mobil's acquisition of Pioneer Natural Resources and Chevron's takeover of Hess Corporation.

Long-Term Confidence in Oil and Gas

Despite geopolitical uncertainty, oil companies remain cautious in near-term forecasting but broadly optimistic about long-term oil and gas fundamentals.

On the supply side, slowing growth in major producing regions reduces the risk of future surpluses. Drilling activity in US shale basins continues to contract, reflecting producer dissatisfaction with current price levels. OPEC+ has also fallen short of its production goals, reaching only three-quarters of planned increases this year, as some member states hit production limits or work to correct prior overproduction.

On the demand side, consumption is proving more resilient than earlier projections. The International Energy Agency (IEA) now acknowledges that oil and gas fields are depleting faster than expected, signalling the need for substantial continued development and investment — supported in part by strong demand from India.

International oil companies have taken note of these shifting fundamentals. BP's 2025 World Energy Outlook postpones the forecast peak in global oil demand to around 2030, reaffirming the continued strategic importance of oil and gas. Reflecting this shift, companies such as BP and Shell — after prioritising renewable investments two to three years ago — are refocusing on traditional oil and gas operations. This alignment of supply, demand, and investment signals that while oil majors face short-term cost pressures, the long-term outlook for global oil and gas remains robust.