Abstract With the rapid growth in population and urbanization, a development in sustainable treatment of sewage sludge has become an urgent environmental concern globally. Lipid extraction has been investigated in order to valorize waste sewage sludge treatment through a pathway that leads to biodiesel. In this work, an integrated approach that combines lipid extraction of sewage sludge with hydrothermal liquefaction of the lipid-extracted sludge was studied in order to maximize valorization. The hydrothermal process was performed at temperatures ranging from 250 to 350 °C with 20 min. Regarding the bio-crude: below 300 °C, similar values are found with and without lipid-extraction, with the former variant containing more nitrogenated compounds stemming from Maillard reactions, while the latter more hydrocarbons; at 350 °C, higher bio-crude is obtained from raw sewage sludge owning to the conversion of lipids. Palmitic acid was selected as a model lipid to elucidate the role of lipids during the process, as well as to provide an improved understanding of the reaction network. Energy recovery reached values of 85.4% for hydrothermal liquefaction of sewage sludge and 98.3% for integrated approach considering the whole range of biofuel products. The energy consumption ratio was applied to estimate energetic efficiency for the combined process, making it possible to estimate the breakeven point of the process, plus the efficiency of both the hydrothermal process on its own in comparison with the combined option.