Shell halts construction of major biofuels facility in the Netherlands

By Louis Goss

Shell on Tuesday said it had temporarily halted construction of a major biofuels production facility in the Netherlands, in a bid to ensure it is able to produce competitively in the face of anticipated flood of sustainable fuels into the market from the U.S.

The London-headquartered company first committed to building the 820,000 tonnes per annum biofuels production facility in September 2021, in line with plans it first announced in 2020 to transition into an entirely net zero carbon emissions business by 2050.

In 2022, the Biden administration passed the Inflation Reduction Act which promises to provide various subsidies and tax incentives to the U.S. biofuel industry, with a view to driving an increase in the production of sustainable fuels.

Shell has now decided to "temporarily pause on-site construction work" at its planned facility in Rotterdam to ensure "future competitiveness given current market conditions," the company said in a statement.

"Temporarily pausing on-site construction now will allow us to assess the most commercial way forward for the project," Shell's downstream, renewables and energy solutions director, Huibert Vigeveno, said.

Shares in Shell (UK:SHEL), listed on the London stock exchange, were up 1% on Tuesday having advanced 21% over the previous 12 months.

Once built, the facility at the Shell Energy and Chemicals Park Rotterdam is set to become one of Europe's biggest biofuels production facilities, behind the huge 1.4 million tonne per annum facility owned by Neste Oyj (UK:0O46) of Finland which is also in Rotterdam.

Shell previously said sustainable aviation fuels would account for more than half of all output from the planned 820,000 tonnes per annum Rotterdam facility, with renewable diesel accounting for the rest.

The world produced just 500,000 tonnes of sustainable aviation fuels in 2023, according to figures from the International Air Transport Association. An estimated 325 million tonnes per annum will be required to fully-decarbonise air travel, a report from Strategy& shows.

Aviation accounted for around 2% of global greenhouse gas emissions in 2022, figures from the International Energy Agency show. Sustainable aviation fuels are expected to play a vital part in decarbonizing the aviation sector.

The term 'biofuels' covers all fuels made out of sustainable, organic materials, such as agricultural by-products or cooking waste, that are used as replacements for fossil fuels.

In March this year, Shell lowered its short-term climate targets, following a surge in crude oil and natural gas prices in the wake of Russia's invasion of Ukraine in February 2022 that saw the world's top hydrocarbon companies post record profits in recent years.

This saw Shell update its 2030 target, stating it is now aiming to cut the emissions intensity of its business by 15-20%, compared to its original 20% pledge, as the oil major also scrapped its 2035 goal altogether. Shell maintained its plans to become a carbon neutral company by 2050.

"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 to help us and our customers profitably decarbonise," Vigeveno said. "And we will continue to use shareholder capital in a measured and disciplined way, delivering more value with less emissions."

-Louis Goss

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07-02-24 0524ET

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