Shell Drops Singapore Biofuels Project, Splits Renewables

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Fri, Mar 31, 2023

Authors Editor
Marc Roussot, Singapore Caroline Evans
Tom Daly, London

William Barton/Shutterstock

Shell has opted not to proceed with planned biofuel and base oil projects in Singapore —
and separately announced a split in its renewables business as restructuring continues
under new CEO Wael Sawan.
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 The UK major had intended to build a 550,000 ton per year biofuels complex at Bukom to
produce sustainable aviation fuel (SAF) and biodiesel. This was expected to be sanctioned
by the end of 2022.

It also planned to develop a Group II base oil project, providing feedstock for its lubricants
production in Singapore.

“We will continue supplying base oil and lubricants, as well as biofuels to our customers in
Singapore and the region,” a Shell spokesperson said, adding that the company would draw
on its global portfolio to do so.

Transition Questions

The Singapore projects were a cornerstone of the transformation of Shell's Bukom refinery
and associated Jurong petrochemical plant in the Southeast Asian city-state. Bukom is one
of Shell’s five energy and chemicals parks globally and the only one in Asia.

Their cancellation raises question over Shell’s transition strategy, since they were expected
to reduce the company's carbon footprint, particularly its Scope 3 (end-use) emissions.

Shell has already unveiled a plan to halve its operational (Scope 1 and 2) CO2 emissions in
Singapore from 2016 levels by 2030.

Bukom was also set to play a key role in the Shell's ambition to produce around 2 million
tons per year of SAF by 2025 and for SAF to account for at least 10% of its global aviation
fuel sales by the end of the decade.

The company's transition plan is already under scrutiny amid speculation that it may retire
its guidance of a 1%-2% annual decline in oil production until 2030.

SAF Uncertainty

The move also throws into question the future of the Bukom plant, whose refining capacity
was more than halved back in 2021 to 237,000 barrels per day.

Demand for SAF has been rising in Asia in line with the International Air Transport
Association’s call for the aviation industry to achieve net-zero emissions by 2050.

Shell became the first company to supply SAF in Singapore last year, and was well-placed to
feed key regional airports.

However, unlike the US and Europe, where biofuels mandates are in place, Asia’s demand
for low-carbon fuels is voluntary, creating investment uncertainties.
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 SAF currently accounts for around 0.1% of aviation fuel used globally and its growth
trajectory is unclear. Biofuels remain an expensive product sold at a premium to standard
fuels, making them difficult for many price-sensitive Asian buyers to afford.

Renewables Shake-Up

Meanwhile, Shell said separately it is splitting up its renewable electricity business, with
wind and solar to come under the control of regional heads of power arm Shell Energy.

The move re-aligns management of Shell's renewable power generation business at a time
when the returns delivered by its transition investments — relative to traditional oil and gas
projects — are coming under scrutiny.

Shell sets a minimum internal rate of return target of 10% for its renewable projects. "If we
cannot achieve double-digit returns in a business, we need to question very hard whether
we should continue in that business," Sawan said on the company's fourth-quarter earnings
call. "Absolutely, we want to continue to go for lower and lower and lower carbon, but it has
to be profitable."

The major will eliminate the global role of executive vice president for renewable
generation, held by Thomas Brostrom.

The former Orsted executive will remain at Shell as senior vice president for Shell Energy in
Europe and Asia, reporting to Executive Vice President Steve Hill.

Meanwhile, Anna Mascolo, currently Shell's executive vice president for emerging energy
solutions, has been appointed executive vice president for low carbon products and sectors,
overseeing biofuels, carbon capture and nature-based solutions.

Mascolo and Hill will both report to Huibert Vigeveno, Shell's downstream and renewables
director.

In January, Sawan's first month in charge, Shell announced a shake-up that combined its
renewables and energy solutions business with its downstream segment. Renewables had
previously been grouped with integrated gas.

Topics: Biofuels (incl. SAF), Majors, Corporate Strategy , Gasoline, Diesel/Gasoil, Chemicals, Refining,
Renewable Electricity
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