European Biofuels Producers: Signs of Recovery Amid Global Uncertainties

After several challenging years characterized by tight margins and soaring feedstock costs, European biofuels producers are finally beginning to see a glimmer of hope. The backdrop is complex, with recent geopolitical developments in Iran casting uncertainty over global energy markets. Nonetheless, many companies in the sector are embracing a renewed sense of optimism.

A Shift in Strategy and Focus

The combination of improved policy support, expansion of production capacity, and stronger financial performance anticipated for the end of 2025 is driving a positive shift in sentiment across the biofuels landscape. As producers adapt, there is a noticeable pivot towards prioritizing Hydrotreated Vegetable Oil (HVO), while also exploring opportunities in biomethane.

HVO Takes Priority as SAF Margins Tighten

One of the most significant changes in the market is the increased emphasis on HVO production. European producers are reallocating resources to HVO, moving away from Sustainable Aviation Fuel (SAF) as the pricing dynamics between the two fuels begin to converge. Imports of SAF, especially from China, have exerted pressure on margins throughout the sector.

Even companies with robust investments in SAF are evaluating their production strategies. Neste, a global leader in SAF production, exemplified this when CEO Heikki Malinen indicated that the company is prepared to pivot toward renewable diesel if the demand for SAF starts to weaken. Despite these uncertainties, Neste remains committed to the aviation fuel market, having sold approximately 870,000 tons of SAF in 2025, with future adjustments likely being measured rather than drastic.

Diverging Paths: US Producers Expand SAF Capacity

Contrasting the European pivot to HVO, U.S. companies are moving in the opposite direction by expanding their SAF production capabilities. For instance, Montana Renewables is progressing with its MaxSAF 150 project, which aims to significantly bump up SAF production by 120-150 million gallons annually. This expansion, expected to be operational by 2026, also includes plans to appeal to international markets by promoting the environmental benefits associated with its SAF.

This divergence highlights a growing regional divergence in biofuel strategies; while European producers are focusing on road fuels, their U.S. counterparts are building capacity specifically for aviation fuel.

Expanding HVO Distribution Across Northern Europe

Beyond individual company strategies, there is a broader regional commitment to renewable diesel as the transport sector prepares for an electrification transition. Companies like VARO Energy and Preem are investing in expanded HVO distribution networks, responding to Northern Europe’s demand for lower-carbon fuels while electric vehicle infrastructure continues to develop.

In Sweden, where HVO has seen widespread usage, Preem has recently extended its marketing reach into Norway. The Norwegian fuel is produced at the VARO-PREEM facility in Gothenburg using feedstocks derived from waste materials like paper pulp and food production.

Capacity Expansion Underway

For the optimistic outlook of the sector to materialize, continued expansion of production capacity is essential. In Italy, Eni is undertaking significant investments in new biorefinery and feedstock processing initiatives to enhance European capacity for the first time in several years. At its Sannazzaro refinery, Eni is in the process of converting an existing unit into a hydrocracker capable of handling 550,000 tons of waste feedstock annually.

Producers Operating Near Capacity

Several producers are reportedly running at or near full capacity. Neste has indicated that its refineries are operating close to their limits, while the next significant increase in capacity is slated for 2027 when the Rotterdam SAF plant expansion is completed, doubling its capacity to 2.7 million tons annually.

Positive Market Sentiment

The biofuels industry has entered 2026 with generally improving sentiment, as evidenced by the financial results from major companies. Neste, for instance, has reported an increase in both revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at the end of 2025. Additionally, the company has successfully reduced its leverage ratio after a period of steep increases, indicating an encouraging stabilization of financial conditions without heavy reliance on further debt.

Geopolitical Tensions Pose Challenges

However, this cautiously optimistic outlook is set against the backdrop of escalating geopolitical risks. The ongoing situation in Iran has injected renewed volatility into global energy markets, with threats to oil infrastructure and shipping routes compounding supply chain uncertainties. Analysts have reported that attacks on energy facilities and supply chain snags have already led to oil price spikes, creating further concerns about sustained disruptions.

Interestingly, while rising fossil fuel prices might bolster the demand for alternative fuels in the short term, prolonged instability introduces broader economic risks that could permeate through energy and commodity markets.

Emphasizing Flexibility

In light of these developments, flexibility in production remains crucial for biofuels producers, especially as market dynamics evolve. Companies like Neste and Eni have designed their facilities to remain adaptable, allowing for shifts between SAF and HVO based on market conditions. This capability may be one of the sector’s most valuable assets in a rapidly changing energy landscape.

Upcoming Live Webinar: Market Overview

With the biofuels sector evolving at such a dizzying pace, staying informed is crucial. To aid in this endeavor, a live webinar is on the horizon, scheduled for March 26, covering critical topics in the biofuels market. Participants can expect insights into the implications of the Iran conflict, U.S. responses to tariff shifts, European RED III adoption, and the latest on SAF and marine biofuels.

For those keen to understand the evolving biofuels landscape, this expert analysis promises to provide valuable perspectives on what to watch for in Q2 2026 and beyond. Don’t miss the opportunity to register for the webinar and secure your spot.