The Biofuels Oil Rush

(World Bio Market Insights) With big oil moving into biofuels, Shell is one to watch. -- ... From another angle, biofuels are an already-lucrative global commodity attracting attention from some of the biggest corporate entities in the world: oil majors.

The oil companies say renewable fuels are central to their long-term business strategies as they adapt to a changing climate. Royal Dutch Shell Mr. Ben van Beurden told investors recently that Shell no longer an oil and gas company, but an energy transition company.

How have oil majors moved into the biofuels business over the years and what does it mean for the sector? We look at BP and Shell’s history in biofuels and their latest moves into renewable fuel.

The first wave

Oil first went into biofuels in the 2000s.

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Financial and strategic reasons drove big oil’s move into the biofuel supply chain. Access to low cost, conventional oil was already becoming difficult back in the 2000s. What’s more, the oil majors knew that climate targets were rapidly becoming part of the business calculus.

In this first decade, the biofuels strategies of the oil majors diverged. On the one hand we have BP and Shell which invested in mature, first-generation biofuels: these are made from crops normally grown for food such as corn, sugar, palm oil.

Exxon took a slightly more unconventional route. It bypassed these proven biofuels for more exotic R&D ventures, partnering with biotech company Synthetic Genomics to develop viable ways to turn algae into liquid energy. Algal biofuels belong to third generation biofuels and progress in scaling remains extremely limited.

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Also known as advanced biofuels, breakthroughs in cellulosic biofuels production would mean that cheap by-products from forestry and agriculture, and even household waste, could be used as feedstock.

Shell’s first investments into cellulosic biomass conversion began in 2002. A major development came in 2006 when they partnered with Codexis to develop more powerful enzymes that could convert organic waste into furls, spending $126 million on this between 2008 and 2010.

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By the late 2010s, BP was one of the largest blenders and marketers of first-generation liquid biofuels in the late 2010s. It first went into the sector in 2007.

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In 2008 it also invested in Brazilian ethanol production through a Tropical BioEnergia S.A . joint venture, constructing two ethanol refineries.

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Right now, BP says that it places biofuels production expansion at the heart of its strategy to diversify its portfolio and secure revenue under accelerated decarbonisation scenarios.

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BP Bunge Bioenergia’s sell off set in motion from August 2021 but this sudden biofuels divestment was omitted altogether from all three quarterly reports released by the company through 2022.

Instead, BP highlighted its newer biofuels ventures. In 2022, for example, it entered into a long-term strategic offtake and market development agreement for low-carbon biofuels feedstock with Nuseed.

It also reported “advanced its strategy in biofuels” producing sustainable aviation fuel at bp’s Lingen refinery. 2022 also saw BP acquire 30 percent stake in acquired a stake in Green Biofuels Ltd, the UK’s largest provider of low emission hydrogenated vegetable oil fuels.

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Shortly after putting its Brazilian biofuels venture up for sale, BP made a large acquisition in biogas instead.

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Shell meanwhile is more forthcoming on its biofuels programme.

Its biofuels interest is Brazil’s Raízen, which produced 2.5 billion litres of ethanol in 2021. In the same year, Raízen bought Biosev, which will add 3.75 billion litres to its bioethanol production capacity per year.

Right now, it looks like Raizen might well take over BP Bunge Bioenergia, being only one of two buyers in contention for the Brazilian bioenergy asset after BP put it up for sale.

Raízen began life as a 2011, $12 billion joint-venture by Shell and Cosan S.A. Indústria Comécio, a natural gas distribution company operating in Brazil, Argentina, Uruguay, Paraguay, and Bolivia. Because Raizen grows its own crops, the deal meant that Shell entered the biofuels supply chain right at its source. Shell now holds a 44% interest in the company.

Raízen began life producing first generation biofuels. However, by 2021 it had announced plans to build its second cellulosic ethanol plant – the only producer in the world to do so. Five more are in the pipeline.

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In Europe, Shell is building its own biofuels operations.

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What’s more, Shell has sustained an interest in cellulosic biofuels that first began in the 2010s.

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Under this programme, it has already invested in two plants that specialise in cellulosic: Enerkem Varennes Québec and Lanza Jet’s plant in Georgia US.

Combined with increased government incentives, biofuels scaling and consolidation will likely be driven by legacy energy firms pushing to diversify their portfolio before oil becomes a stranded asset. Shell’s active investments suggest that, among all other Western oil majors, it will play a major role in this.

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What makes oil majors so well-positioned to consolidate the biofuels industry is their capacity to absorb volatility in input and market prices where smaller companies may fold. READ MORE

Excerpt from Reuters: BP (BP.L), has agreed to buy grain trader Bunge's (BG.N), opens new tab 50% stake in Brazilian sugar and ethanol joint venture BP Bunge Bioenergia for $1.4 billion in a bet on growing demand for low-carbon biofuels.

Following the completion of the deal, expected by end-2024, BP will take full ownership of Bioenergia which has production capacity of around 50,000 barrels a day of ethanol equivalent from sugarcane.

BP will consolidate Bioenergia's debt and lease obligations of $1.2 billion, it said, meaning that it will pay out a total of $800 million to Bunge, according to Reuters calculations.

The acquisition comes amid growing investor concern over BP's strategy after ratings agency S&P Global earlier this month revised down BP's credit outlook, citing slower than expected debt reduction.

BP said the acquisition is expected to meet its returns threshold for bioenergy of more than 15% and will be within its existing annual spending framework of around $16 billion.

BP is also scaling back plans for the development of new biofuels projects, it said.

The company is pausing two biofuel projects at its Lingen refinery in Germany and its Cherry Point refinery in the U.S. state of Washington. It is assessing three other projects.

"Taken together, these changes can enable us to deliver the growth and returns we expect from biofuels, but in a simpler, more focused way. This is fully in line with BP’s priorities of driving focus into the business and growing shareholder returns," BP's head of customers and products Emma Delaney said. READ MORE