Oil Companies/Supermajors Are Entering Biofuel Space As a Part Of Energy Transition
Introduction
In the oil & gas industry, oil supermajors term commonly refers to the group of integrated oil companies (IOC) that has a presence in the complete cycle of hydrocarbons, starting from exploration & production to downstream refining and fuel retail operations. The group mainly includes BP, Chevron, ExxonMobil, Shell, and TotalEnergies. Therefore, this thought piece will mainly focus on these companies’ strategies and investments in the biofuel space.
Over the years, these supermajors have maintained a dominating position in the refining industry and captured about 12% of the global refining capacity. However, in the last decade, the industry has witnessed a common trend among all the supermajors i.e., the rationalization of refining capacity due to weakening refined product demand, sustainability trend which is strongly supported by stringent environmental regulations mainly in developed economies, and increasing support in energy transition space.
These factors have created lots of buzz for biofuels as these fuels are the closest sustainable alternatives to fossil fuels and have already been at the commercialized stage in many markets. Biofuels are mainly characterized into four generations, 1st generation, 2nd generation, 3rd generation, and 4th generation. Among these, currently, 1st and 2nd generation fuel production technologies are available at the commercial level whereas 3rd and 4th generation are either demonstration phase or have no development yet happened. Since generation 1st biofuel is not very sustainable as these fuels are derived from food crops that are available for human consumption. Therefore nowadays, the industry is mainly focusing on the advancement of 2nd generation biofuel.
Why biofuels are gaining traction among oil companies?
Biofuel can be used as a drop-in fuel in the transportation industry
Drop-in fuels mean that the fuel can be used in the existing fuel system without the need to change the complete fuel infrastructure. As the transportation industry is one of the largest consumers of refined products, therefore, reducing fossil fuel consumption from the transportation sector is critical to achieving net-zero targets. Biofuels can be used as a drop-in fuel in the transportation sector and thereby helps in mitigating carbon emission. Therefore, biofuels are considered one of the alternatives to energy transition from conventional fossil fuels in the transportation sector.
Support given to oil companies to increase biofuel production
Countries across the globe have taken net-zero commitments at the international level and to achieve their targets, they are progressively focusing on conventional fossil alternatives. Among many alternatives, they are focusing on biofuels as well. This is because the electrification of the transportation sector will happen over a long period of time. Therefore, countries are supporting the biofuel industry through several lucrative policies.
Further, many countries are highly dependent on crude oil & gas imports and since the oil & gas market is highly uncertain therefore in many times it marks a dent in the crude importing country’s economy. As biofuel is produced using waste feedstock (2nd generation), thus, this can be produced in any country without much dependency on import. This is one of the key reasons why governments across the world are promoting biofuel production.
Oil supermajors biofuel target
Company | Current biofuel production/supply | Biofuel production target |
BP | 27,000 b/d (2022) | 50,000 b/d (2025) 100,000 b/d (2030) |
Chevron | 40,000 b/d (2022) | 100,000 b/d (2030) |
ExxonMobil | NA | 200,000 b/d (2030) |
Shell | Supplied 9.5 billion liters (2022) | NA |
TotalEnergies | Supplied 3.3 million tons (2022) |
Oil supermajors' investment decisions and developments in biofuel/energy transition
BP
Investment: $15 billion in biofuels and biogas between 2023 and 2030.
Developments: ·
In November 2022, BP announced its Cherry Point refinery in the US had doubled its renewable diesel production capacity compared to the fourth quarter of 2021. The refinery now has the capability to co-process more than 7,000 b/d of renewable diesel.
In September 2022, Air BP signed an MoU with China National Aviation Fuel (CNAF) to explore opportunities to help decarbonize the aviation sector, and in October made its first Commercial delivery of sustainable aviation fuel (SAF) to Aberdeen International Airport.
In March 2022, Air BP signed a strategic collaboration agreement with DHL Express to supply SAF until 2026 and also signed an SAF supply contract with Rolls-Royce in the UK and Germany.
In February 2022, BP announced it had acquired a 30% stake in Green Biofuels Ltd., the UK’s largest provider of low-emission hydrogenative vegetable oils fuels (HVOs). This investment will expand BP’s global biofuels portfolio and its lower carbon solutions for UK customers.
BP invests $10 million in WasteFuel, which is planning to develop a global network of plants to convert municipal and agricultural waste into bio-methanol, a biofuel that could play a significant role in decarbonizing hard-to-abate sectors like shipping.
Chevron
Investment: $8 billion in low carbon namely, renewable fuels, hydrogen, and carbon capture and offsets between 2022 and 2028. Also, $1 billion in renewable fuels in 2023.
Developments:
During 2021 and 2022, the company spent $4.8 billion in lower carbon investments, including $2.9 billion associated with the acquisition of REG. The acquisition helped the company in becoming the second-largest producer of bio-based diesel in the United States.
In 2022, formed a joint venture with Bunge North America, Inc. to develop renewable fuel feedstocks, leveraging Bunge’s expertise in oilseed processing and farmer relationships and Chevron’s expertise in fuels manufacturing and marketing.
In the third quarter of 2021, its El Segundo refinery began co-processing approximately 2,000 b/d bio feedstock, producing renewable diesel as well as a batch of SAF. The co-processing unit is expected to achieve full production of 10,000 b/d by end-2023.
Investing $950 million to increase the renewable diesel production capacity at its REG’s Geismar biofuel facility. When completed in 2024, the facility will increase the site production capacity from 7,000 b/d to 26,000 b/d.
ExxonMobil
Investment: Investment of more than $17 billion in the lower-emission segment including biofuel between 2022 to 2027.
Development:
Imperial Oil Ltd., an ExxonMobil majority-owned company, has taken the final investment decision (FID) on a $560 million, 20,000 b/d renewable diesel project, located at its Strathcona refinery in Canada. The project is likely to achieve start-up by 2025.
In 2022, ExxonMobil expanded its interest to 49.9% in Biojet AS, a Norwegian biofuels company that plans to convert forestry and wood-based construction waste into lower-emissions biofuels and biofuel components.
In 2020, ExxonMobil signed an agreement with Global Clean Energy Holdings to purchase 2.5 million barrels of renewable diesel per year for five years from a converted California refinery starting in 2022.
Shell
Investment: Invested $4.3 billion in low-carbon energy solutions in 2022 This includes capital spending on biofuels, hydrogen, and charging for electric vehicles, as well as wind and solar power.
Development:
In June 2022 Shell completed the acquisition of the Landmark fuel and convenience network which provides opportunities to offer customers expanded fueling options (including electric vehicle charging, hydrogen, biofuels, and lower-carbon premium fuels) and allows for the growth of non-fuel sales through an enhanced convenience offering.
In November 2022, Shell announced an agreement to buy 3.25 billion liters of sugar-cane ethanol under a long-term agreement with Raizen, a Brazilian JV in which Shell holds a 44% stake.
In the Netherlands, Shell is building one of Europe’s largest biofuel production facilities, which will produce up to 820,000 tons per year of low-carbon fuels from predominantly waste feedstocks. The facility is expected to come online in 2025.
In 2022, Shell acquired EcoOils, which uses its recycling technology to turn waste into spent bleaching earth oil, an advanced biofuel feedstock that can be used to produce sustainable low-carbon fuels.
In 2022 Shell signed a non-binding memorandum of understanding with Lufthansa to supply SAF for its aircraft at airports worldwide.
TotalEnergies
Investment: Investing $13–15 billion between 2022 and 2025. About 50% in biomass, renewable fuels and electricity, and LNG and Gas.
Development:
In December 2022, TotalEnergies signed a memorandum of understanding with Air France-KLM to deliver more than 800,000 tons of SAF over the 10-year period from 2023. The fuel is expected to be produced in the Company's biorefineries in France for flights departing from France and the Netherlands.
In Japan, TotalEnergies partnered with ENEOS Corporation in April 2022 to develop a SAF sustainable supply chain for the ENEOS refinery in Negishi by 2025.
With an investment of $310 million, TotalEnergies converted its La Mède refinery into a 500,000 tons per year renewable diesel and SAF facility in 2019.
Investing $565 million at its Grandpuits refinery in France to convert it into zero-crude platform. When commissioned in 2024, the facility would be able to produce 170,000 tons of SAF; 120,000 tons of renewable diesel; and 50,000 tons of renewable naphtha, used to produce bioplastic.
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