Shell Drops Singapore Biofuels Project, Splits Renewables

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.

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.

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.