Shell Slows Down on New Rotterdam Biofuel Plant – What’s the Hold Up?

Shell Nederland Raffinaderij B.V. Halts Construction at Biofuel Facility in Rotterdam: What's Behind the Decision and Potential Impact on Operations?

Shell Nederland Raffinaderij B.V., a subsidiary of Shell, has announced a temporary pause in the construction of its extensive biofuel facility in Rotterdam. The facility, with an impressive capacity of 820,000tpa, located at Shell Energy and Chemicals Park, will be put on hold to redirect focus towards other critical aspects of the company. The decision raises questions about the rationale behind Shell’s move and its potential impact on operations, global market standing, and the workforce.

Why did Shell opt for this bold decision? Wael Sawan, the CEO of Shell, has emphasized the prioritization of the company’s most lucrative ventures, particularly in the oil and gas sector. This strategic shift has led to Shell withdrawing from less profitable renewable energy and hydrogen projects, resulting in the temporary suspension of the Rotterdam biofuels project. The company is currently conducting a comprehensive valuation review of this unit, which was also slated to produce sustainable aviation fuel (SAF) in addition to renewable diesel. Initial plans aimed for operations to commence in 2025, but the timeline has now been pushed back to the end of the decade. Another significant factor contributing to the halt is the deliberate slowing down of activities and reduction in contractor numbers to enhance cost control measures. Shell believes that this approach will facilitate the optimization and streamlining of project sequences, enabling a reevaluation of project delivery to maintain competitiveness in the prevailing economic landscape. Huibert Vigevano, Shell’s downstream head, affirmed, “Temporarily pausing on-site construction now will allow us to assess the most commercial way forward for the project. We are committed to our target of achieving net-zero emissions by 2050, with low-carbon fuels as a key part of Shell’s strategy.” UBS analyst Joshua Stone noted, “The pause aligns with Shell’s strategy to prioritize returns, underscoring the challenges in the advanced biofuels market that major oil companies have encountered.”

Amid the news of the construction pause, there is positive development for Shell in Canada. Shell Canada has recently received the final investment decision (FID) for carbon capture and storage (CCS) projects, including the Polaris project and the Atlas Carbon Storage Hub, in collaboration with ATCO EnPower. The Polaris project, wholly owned by Shell, is expected to reduce Scope 1 CO2 emissions at Shell’s Scotford refinery by up to 40% and by up to 22% at the chemicals complex, with operations scheduled to commence by the end of 2028. Additionally, Shell Eastern Trading has successfully acquired Pavilion Energy from Carne Investments, securing full control of the company. Pavilion Energy, based in Singapore, operates a global LNG trading business with 6.5 mtpa of contracted supply, shipping services, and gas supply activities across Asia and Europe. This acquisition further bolsters Shell’s LNG portfolio, providing strategic access to key markets and enhancing flexibility to meet energy security needs in Asia and Europe.

While the decision to pause ongoing projects may seem unconventional, Shell is not alone in this strategy. Energy giant BP recently announced a similar pause on two biofuel projects in Germany and the U.S. Reports from media outlets like the Financial Times suggest that biofuel prices have been under pressure due to reduced demand in Europe following Sweden’s biofuel mandate cut, coupled with increased supplies from the U.S. Despite these challenges, Shell’s shares saw a 1.3% increase at 1106 GMT, reflecting a rise of over 12.5% this year. Shell currently boasts a market capitalization of $235.01 billion and an enterprise value of $277.77 billion. As of the latest data, Shell’s stock price over the last five days stood at $73.25 per share, indicating positive performance in the market.

Shell’s utilization of carbon credits plays a pivotal role in its ambition to transition into a net-zero emissions energy business. These credits enable Shell and its customers to offset emissions, aligning with the mitigation hierarchy of avoiding, reducing, and compensating emissions. Notably, Shell selects projects certified by leading standards such as the Verified Carbon Standard, Gold Standard, and the American Carbon Registry. Within the ESG framework, the company generates carbon credits from nature-based projects and innovative technologies. In 2023, Shell’s net carbon intensity (NCI) included 20 million carbon credits, with 4 million linked to energy product sales. Shell’s commitment to achieving net-zero emissions by 2050 encompasses Scope 1, 2, and 3 emissions, as outlined in Shell’s Energy Transition Strategy. The strategy includes targets to halve Scope 1 and 2 emissions by 2030, eliminate routine flaring from Upstream operations by 2025, maintain methane emissions intensity below 0.2%, and achieve near-zero methane emissions by 2030. In terms of emissions from sold products (Scope 3), Shell aims to reduce the net carbon intensity of energy products by 9–12% by 2024, 9–13% by 2025, 15–20% by 2030, and ultimately achieve 100% reduction by 2050, based on a 2016 baseline. Additionally, Shell aims to reduce customer emissions from the use of its oil products by 15–20% by 2030, falling under Scope 3, Category 11, based on a 2021 baseline.

According to Global Market Insights, the European biofuel market surpassed USD 26.5 billion in 2023 and is projected to exhibit a 6.7% compound annual growth rate from 2024 to 2032. This growth is attributed to increasing concerns about climate change and the rising demand for sustainable energy sources. The European government’s target to elevate renewable fuels to approximately 14% of transport energy by 2030 indicates substantial future demand. With this optimistic outlook for the biofuel market, the future appears promising for energy giants like Shell amidst the ongoing biofuel boom.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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