Graeme Sweeney Reveals Shell's Biofuels Strategy

The oil giant has slowed its renewable energy efforts in wind and solar power. But it is stepping up investments in next-generation biofuels made from non-crop plants

As Royal Dutch Shell (RDSA) looks to the future, it sees that drilling for oil and gas is getting more expensive, while demand is growing for forms of energy that emit less carbon than fossil fuels. Some companies have responded by investing more in wind or solar energy. At Shell, the priority going forward is in biofuels and carbon capture and storage. "We are stepping up our efforts in the area of sustainably sourced biofuels, because they fit our downstream capabilities and could make a substantial contribution to reducing CO2 emissions," Shell Chief Executive Jeroen van der Veer explained in an Apr. 2 speech.

Van der Veer predicts that biofuels will supply as much as 10% of the world's liquid fuels over the next few decades. "We think commercial volumes of next-generation biofuels could be on the market in five to 10 years," he says.

To help get there, Shell has invested in a number of biofuel companies. They include Iogen, which operates a demonstration cellulosic ethanol plant in Canada; Codexis, a subsidiary of Maxygen (MAXY) that makes enzymes used to produce drugs, chemicals, and biofuels; Virent Energy Systems, which uses catalysts to turn sugar into a variety of gasoline-like fuels; and HR BioPetroleum, which uses algae as a source. Shell also has made research agreements with several universities, including the Massachusetts Institute of Technology.

To learn more about Shell's plans, BusinessWeek's John Carey talked to Graeme Sweeney, Shell's executive vice-president for future fuels and CO2. Here are edited portions of that interview:

Why is Shell investing in biofuels?

There are lot of good reasons, which are all underpinned by the fact that there is an ever-growing global demand for energy. The biofuels market is being driven by government mandates and more than 40 countries have or are considering renewable fuels mandates. Coupled with that, sustainably sourced biofuels have the potential to address CO2 emissions from energy and are a natural fit with our downstream business in transport fuels. And as a viable transportation solution, biofuels tick off both the national security and climate change boxes.

Where is that investment going? What is your overall strategy?

We are keen to grow our biofuels business, and we are investing in partnerships targeted at technical breakthroughs and cost reducing initiatives to get there. We have actively pursued innovation through partnerships, and we have sought out the best partners in each of the areas. And since 2007 we have quadrupled our investment levels in biofuels to support this aim. Not all biofuels are the same and so our focus is on making the most of what we have got, and improving it. We are also working to ensure that the feedstocks and conversion processes for the biofuels we purchase today are as sustainable as possible. And our R&D work is looking at the future of biomass. Right now, a common biofuel is corn ethanol but it can sometimes only offer a 15-20% improvement [in carbon emissions] compared to gasoline. So when you ask what are the routes to better ethanol, you get fairly quickly to cellulosic ethanol.

Which is why you've invested in Codexis and Iogen?

Yes, Iogen is the only company actually making any cellulosic ethanol (from straw), and Codexis has a fine track record improving enzyme performance. It's still too expensive for full-commercial deployment, but showing that pretreatment, enzymatic hydrolysis and fermentation all work together to make ethanol from the wheat straw has given us the confidence to move from development to demonstration. We are working on the design now of an early small scale commercial plant, with 90 million litres capacity. It would take a couple of years to complete, and we would progressively integrate the Codexis technology.

We haven't made the final investment decision yet, but we think our combination has significant competitive advantages. What I also say is that it is entirely healthy that other folk out there are taking different routes. It's encouraging that other people are in the market, and it's particularly important when we are saying to governments that we may need help through the demonstration phase.

Why make investments in some of those competitors as well as in Iogen?

When it comes to feedstock, it matters what kind of land is used. The more marginal the land the better. So one feedstock that comes to mind is algae, although this is more suitable to biodiesel than bioethanol. We did a lot of due diligence on potential partners and made our choice. What we like about our partners in the Cellana joint venture with HR Biopetroleum is that they maintain the purity of their algal strains by preserving them in phototubes, but then they grow the algae rapidly in open ponds. It uses marginal land and seawater, and produces at least 15 times more oil per hectare than rape or palm oil.

What about moving beyond ethanol?

I think there will be a lot of ethanol. Sugar cane ethanol is more sustainable and will create a good well-to-wheels CO2 reduction. But if the sugar could one day be converted to hydrocarbons, that would make the job easier. I know that others are working on butanol, but we don't see that as a preferred route. We prefer the metal catalysis route of Virent Energy Systems.

Virent, of course, plans to use its catalysts to make renewable gasoline, diesel, and jet fuel. So are all of these technologies going to pan out?

We have to be very ruthless. Our biofuels activities are typically at the R&D stage, or in small scale pilots--a good way to think of them is that they are exploration ventures. With these ventures we take a milestone approach. If they pass the milestones, we carry on. If they don't, we stop. If we are very lucky, we will have more options that pass milestones than we can commercialize. Then we will sell some. But the pipeline has to have more in it than we can commercialize, because these advanced technologies are risky.

    Before it's here, it's on the Bloomberg Terminal.