By Ron Bousso
LONDON (Reuters) -Shell will pause construction work at one of Europe’s largest biofuel plants due to weak market conditions, the latest low-carbon project to suffer a setback as CEO Wael Sawan is striving to boost returns.
It is rare for companies to suspend development of projects underway. Rival BP last week said it is pausing two biofuel projects in Germany and the United States.
Under Sawan, who took office in January 2023, Shell has scrapped and sold renewable and hydrogen projects, retreated from European and Chinese power markets and sold refineries in order to focus on the most profitable operations, primarily in oil and gas.
Shell shares have gained over 11% so far this year.
Shell gave the greenlight for the development of the 820,000-ton-a-year plant in the Netherlands in September 2021 which was originally planned to start production in 2025. The project is now expected to go online towards the end of the decade.
The facility at its chemicals park in Rotterdam was slated to produce sustainable aviation fuel and renewable diesel made from waste.
Shell said in a statement that following the decision to pause construction, “contractor numbers will reduce on site and activity will slow down, helping to control costs and optimise project sequencing.”
UBS analyst Joshua Stone said that the pause was consistent with Shell’s strategy to focus on returns
“The delays further highlight that the advanced biofuels market is not an easy one. The oil majors have dipped their toes and found it challenging,” Stone said.
Shell will also consider an impairment for the project and will provide further details in its quarterly trading update on Friday, it said.
“Temporarily pausing on-site construction now will allow us to assess the most commercial way forward for the project,” Shell’s downstream head Huibert Vigeveno said in a statement.
(Reporting by Arunima Kumar in Bengaluru; editing by Jason Neely and Louise Heavens)
