What’s happening? Shell has said that it expects to experience an impairment charge of up to $2bn as a result of selling its Singapore refineries and halting construction of a biofuel plant in the Netherlands. The company said it was pausing construction on the facility at its Rotterdam energy and chemicals complex as the biofuel market was weakening. The plant had been expected to process approximately 820,000 tonnes of sustainable aviation fuel (SAF) and renewable diesel from waste annually. The decision means that Shell is likely to see a writedown of $600m to $1bn when in announces its Q2 figures on 1 August. (The Times)

Why does this matter? Shell’s Rotterdam project, which started construction in 2021, was set to be the biggest biofuel plant in Europe. Approximately half of the biofuels produced by the site were to be used for SAF. As well as confirming its losses with regard to the biofuels project, Shell also confirmed that it anticipated another non-cash impairment of $600m to $800m against the disposal of its Singapore refinery and chemical assets in Pulau Bukom and Jurong Island. The announcement has led to wider speculation about the future involvement of Shell – which is the largest oil and gas company in Europe – in the renewables sector.

New CEO, new strategy – Shell has sought to counter such concerns by claiming that the company “remained committed” to achieving net-zero emissions by 2050, and that low-carbon fuels were “a key part” of the strategy for reaching this goal. However, since Wael Sawan took over as CEO at the beginning of 2023, the company has noticeably scaled back its clean energy initiatives. For instance, it has exited offshore wind projects in France and Ireland, divested its UK power retail operation and explored selling stakes in renewable projects in India and the Sonnen battery storage company.

In March of this year, the company also sold its stake in the planned 2.4GW SouthCoast offshore wind project off Massachusetts. In response to such developments, two employees in Shell’s low-carbon division wrote an open letter in September 2023 that expressed concerns about the company’s commitment to the energy transition.

SAF in jeopardy – Shell’s decision to halt work on the Rotterdam plant is also likely to cause wider concerns about the future of SAF development. This is particularly the case as Shell’s announcement comes shortly after BP’s decision to also scale down plans for SAF development and renewable diesel biofuels initiatives. SAF has been promoted by supporters as a means of helping airlines reduce their carbon emissions in line with global climate goals. The International Air Transport Association (IATA) has previously estimated that SAF could generate around 65% of the emissions decrease required by the sector if it is to achieve net zero CO2 emissions by 2050.

However, critics have claimed that SAF is not a realistic option for ensuring a speedy reduction in emissions from the aviation sector, which is responsible for 3% of global carbon emissions. A report from the Institute for Policy Studies in May of this year argued that there was currently “no realistic or scalable alternative” to standard kerosene-based jet fuels, adding that SAF was not on course to replace such fuels quickly enough to combat dangerous levels of climate change.