Shell’s decision to abandon its flagship 820,000 tonnes-per-year biofuels facility in Rotterdam has sent ripples through Europe’s energy transition community. The project, once touted as a cornerstone of Shell’s low-carbon fuels strategy, would have supplied both sustainable aviation fuel (SAF) and renewable diesel (hydrotreated vegetable oil, HVO) from waste feedstocks. Instead, after a construction pause in July 2024, the company has now confirmed it will not proceed.
The headlines frame this as a setback. In reality, it is a sign of the brutally hard economics of building mega-scale biofuel refineries in a volatile market.
The cost of over-reach
Shell had lined up heavyweights Worley and Shanghai Yanda to deliver the project. Yet, after billions of dollars already spent across its portfolio, Shell has written off close to a billion on Rotterdam alone. Post-tax impairments of roughly $780m are recorded; the final tally will be felt in its capital allocation for years. The project would have been Europe’s third-largest HEFA refinery, a technical achievement, but one that increasingly looked like a financial albatross.
The missing number here is instructive: no levelised cost of energy (LCOE) or per-litre cost curve has been disclosed. Investors do not need one. They can see what matters: the market for feedstocks is tight, competition is fierce, and the capital cost of finishing the plant would have left Shell selling SAF and HVO at a loss unless subsidies increased sharply.
Strategy pivot, not surrender
Critics will say this is evidence of Shell back-sliding on its transition pledges. That is too simplistic. The company is not abandoning low-carbon fuels altogether; it is reallocating. Look closely at where Shell is spending, and the logic becomes clear.
- Holland Hydrogen 1: a 200MW electrolyser under construction at Maasvlakte. Fed by offshore wind, it will produce tens of thousands of kilograms of green hydrogen per day. This is scalable, fungible and aligned with Europe’s industrial hydrogen strategy.
- Porthos CCS: a cluster project to capture CO₂ from Rotterdam’s industrial heartland and store it in depleted North Sea gas fields. If heavy industry is to stay in Europe, carbon capture will be needed at scale, and Shell intends to be central to it.
- Avelia: Shell Aviation’s book-and-claim SAF platform, enabling airlines and corporate customers to buy and account for SAF even when the physical molecules are scarce. It is a demand-side instrument, but one that allows Shell to monetise SAF attributes without carrying the full burden of building every new refinery.
The lesson for policy and industry
Rotterdam’s demise illustrates a fundamental truth: the energy transition is not about announcing the biggest plants; it is about building projects that survive the market’s unforgiving arithmetic. Biofuels will remain part of aviation’s decarbonisation pathway, but policy support and feedstock economics must match investor expectations.
Shell is betting that green hydrogen, carbon capture and trading platforms will deliver better returns per dollar of capital than a stranded refinery. Investors, regulators and competitors would do well to note the shift. The race to net zero will not be won by size or ambition alone, but by choosing the right bets at the right time.
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