Despite Energy Uncertainty, Optimism Persists in European Biofuels

After several challenging years marked by tight margins and high feedstock costs, European biofuels producers are beginning to see signs of recovery. Recent developments in Iran have cast broader uncertainty in global energy markets. Despite these challenges, many companies in the sector are operating with renewed optimism.

Improving policy support, expanding production capacity, and stronger financial performance toward the end of 2025 are helping shift sentiment. At the same time, producers are adjusting their strategies, increasingly prioritizing HVO (hydrotreated vegetable oil) while also exploring opportunities in biomethane.

HVO Takes Priority as SAF Margins Tighten

One of the clearest shifts in the market is the growing focus on HVO production.

European producers are allocating more capacity to HVO and less to sustainable aviation fuel (SAF) as the price spread between the two narrows. SAF imports, particularly from China, are putting pressure on margins across the sector.

Read More: Your Guide to SAF

Even companies heavily invested in SAF are reconsidering their production mix. For instance, world-leading SAF producer Neste has made a point to reinforce the importance of flexibility in its approach.

Speaking to investors in February, CEO Heikki Malinen explained that the company is prepared to shift production toward renewable diesel if SAF demand weakens.

Despite the current uncertainty, Neste remains deeply committed to the aviation fuel market. The company sold roughly 870,000 tons of SAF in 2025, and Malinen noted that any changes would likely be modest.

Production flexibility, rather than a full retreat from SAF, appears to be the strategy.

Looking ahead, Neste expects total renewable fuel production capacity to reach 6.8 million tons per year by 2027, far exceeding its current SAF volumes.

US Producers Move in the Opposite Direction

While European producers are shifting toward HVO, US companies are expanding their SAF capacity.

For instance, Montana Renewables, an early entrant in the US SAF market, is advancing its MaxSAF 150 project. MaxSAF 150 is designed to significantly increase the company's SAF production by 120–150 million gallons per year (MMgy). The expansion is expected to become operational in 2026 and ramp up procedurally.

The company also plans to target international buyers by offering environmental attributes tied to its SAF production.

This divergence highlights a growing regional difference in strategy. While European producers focus on road fuels, the US continues to build aviation fuel capacity.

Expanding HVO Distribution Across Northern Europe

Elsewhere in Europe, companies are betting on the continued role of renewable diesel as the transport sector transitions toward electrification.

VARO Energy and Preem are expanding HVO distribution following Preem’s capacity expansion last year. The strategy aims to meet Northern Europe's demand for lower-carbon fuels while electric vehicle infrastructure continues to develop.

Sweden has already seen widespread adoption of HVO, and Preem recently expanded its reach by launching HVO marketing in Norway. The fuel supplied to Norway is produced at the VAROPreem facility in Gothenburg using feedstocks sourced from paper pulp and food production waste.

According to Magnus Heimburg, VAROPreem’s Deputy CEO and EVP for Markets and Customer Relations, renewable fuels will remain essential during the transition to electrification. However, the switch will happen progressively over time to fully outfit the fleet with electric vehicles.

Capacity Expansion Underway

For the sector’s more optimistic outlook to materialize, production capacity must continue to grow.

In Italy, Eni is investing in new biorefinery and feedstock processing projects to expand its European capacity for the first time in several years.

At its Sannazzaro refinery, Eni is converting an existing unit into a hydrocracker designed to process waste feedstocks. The new unit is expected to handle 550,000 tons of feedstock per year. Priolo is expected to produce up to 500,000 tons per year of either HVO or SAF, depending on market conditions.

Producers Running Near Capacity

Some producers are already operating close to their current limits.

Neste says its refineries are running near full capacity while the company works to optimize production. The next major capacity increase will come in 2027, when Neste completes the expansion of its Rotterdam SAF plant. Once completed, the facility will double its capacity to 2.7 million tonnes per year.

Market Sentiment Turns Positive

Overall, the industry has moved through 2026 thus far with improving sentiment.

Financial results from major companies reflect this improving outlook. After several years of declining performance, Neste reported increases in both revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at the end of 2025.

The company also reduced its leverage ratio after it rose sharply between 2022 and 2024, suggesting financial conditions are stabilizing without heavy reliance on additional debt.

Geopolitical Tensions Add Another Layer of Market Uncertainty

The improving outlook for European biofuel production is unfolding amid rising geopolitical risk. The escalating war involving Iran has injected renewed volatility into global energy markets, with disruptions to oil infrastructure and shipping routes threatening supply flows from the Middle East.

Analysts note that attacks on regional energy facilities and the slowdown of shipping have already caused oil price spikes and raised concerns about further supply disruptions.

In the short term, higher fossil fuel prices can support demand for alternative fuels, but prolonged instability also introduces broader economic risks that could ripple across energy and commodity markets.

Read More: Biofuels Market Implications as Iran War Intensifies

Flexibility Will Be Key

Adding to the current developments and challenges from the war in Iran, uncertainty also remains about which segments of the biofuels industry will grow the fastest.

As a result, many producers are keeping their options open.

Companies such as Neste and Eni have designed their facilities to allow flexible production, enabling them to shift between SAF and HVO depending on market conditions. In a rapidly evolving energy landscape, that flexibility may prove to be one of the sector's most valuable assets.

Live Webinar to Provide Market Overview

With the biofuels landscape shifting so quickly, keeping up with what's happening can prove to be an immense challenge. Fortunately, we can help.

Join us for a live webinar event on Thursday, March 26 where we will take you through all the critical topics in the biofuels market:

• The Implications of the Iran War

• US Response to Tariff Shifts

• European RED III Adoption

• US Feedstock Elasticity

• Updates on SAF and Marine Biofuels

• Advanced Feedstock State of the Industry

With so much uncertainty happening in global energy, you won’t want to miss this expert analysis of what’s important in biofuels and feedstocks and what to look out for in Q2 2026 and beyond.

Register now for the webinar and confirm your spot.