Shell expects hit of up to $1bn on stalled biofuel plant

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Shell will take a hit of up to $1bn on one of its biggest energy transition projects, a stalled plant in Rotterdam that was intended to convert waste into jet fuel and biodiesel.

This week, the oil major paused work on the project amid a difficult market for biofuels. It estimates the move will cost $600mn to $1bn.

It said it expected non-cash impairments of $1.5bn to $2bn in the second quarter, including another writedown of between $600mn and $800mn on a chemicals plant in Singapore that it has agreed to sell to Glencore and Indonesia’s PT Chandra Asri Pacific.

The Rotterdam plant, which was given the green light in 2021, was already behind schedule because of technical difficulties. Originally slated to start production in April, Shell said earlier this year it would be operational “in the latter part of the decade”.

After pausing construction, Shell is now reviewing the economics of the project, as prices for biofuels in Europe come under pressure from oversupply, cheap imports from China, and lower than expected growth in demand.

The European Commission launched an anti-dumping investigation of biodiesel from China last December, and is likely to announce provisional tariffs on Chinese imports this month.

Shell said it was “confident the market will tighten towards the end of the decade”. Wael Sawan, chief executive, has insisted that Shell must be more disciplined and value-focused, and Shell said it would give a final impairment figure for the project, after running a review, at its second-quarter results on August 1.

BP has also recently scaled back biofuels production plans in the US and Germany.

Biofuels are considered more sustainable than fuels refined from crude oil because the carbon dioxide emitted when they are burnt is offset by the carbon dioxide absorbed by the plants they were made from.

The Rotterdam plant, at Shell’s Pernis refinery, was designed to produce about 820,000 tonnes of biofuels a year, split between sustainable aviation fuel and biodiesel, from used cooking oil and animal fats. It is likely that Shell would also have supplemented the plant with certified sustainable vegetable oils.

When it was announced, Shell said the facility would produce enough biodiesel to reduce emissions by 2.8mn tonnes of carbon dioxide a year, the equivalent of taking 1mn cars off the road.