Shell is making a push into more sustainable sources of biofuels with a deal to buy more than 3bn litres of ethanol made from sugarcane waste from its Brazilian joint venture Raízen.
Ethanol, which emits far less greenhouse gases than fossil fuels, is blended with diesel or petrol and used to power vehicles in several countries including Brazil, where most cars can use the fuel.
So-called second-generation biofuels made from waste and non-edible crops have long been touted as a replacement for that made from corn and sugar but have been slow to take off because of high production costs.
Shell said it would buy 3.25bn litres of ethanol made from sugar cane waste under a long-term agreement with Raízen, its joint venture launched in 2011 with Brazilian sugar and energy conglomerate Cosan. Raizen will invest $1.5bn in five new plants, the first of which will start production in 2025.
In 2021, biofuels represented 3.6 per cent of global transport energy demand, mainly for road transport, according to the International Energy Agency.
Although the amounts remain still small, analysts predict a greater role for biofuels as governments seek to reduce emissions from cars, or as a transitional fuel in certain countries ahead of electric vehicle adoption.
The IEA is forecasting annual global demand of 86bn litres of biofuels by 2026, up 28 per cent from current levels.
Andrew Smith at Shell Trading and Supply said combining Raízen’s sugarcane waste technology with the group’s global distribution network and customer relationships would help meet the growing demand.
Monday’s announcement comes as Shell enjoys record profits this year on surging oil and gas prices.
The company, which aims to reduce the production of traditional fuels by 55 per cent by 2030 and provide more low-carbon fuels such as biofuels and hydrogen, bought 9.1bn litres of biofuels last year to blend with other fuels.
The company already has a smaller second-generation biofuels purchasing agreement with Swiss speciality chemicals business Clariant’s Romanian plant and is building an 820,000-tonnes-a-year biofuels facility in Rotterdam to produce sustainable aviation fuel and renewable diesel made from waste.
However, the growing push for biofuels has alarmed campaigners and environmentalists who say demand for crops that can be used for energy has accelerated deforestation, which has a devastating impact on climate change, and note that the conversion of food crops for energy has come at a time of surging food prices.
Maik Marahrens at environmental NGO Transport & Environment said the additional revenue stream for sugar cane farmers was only adding to incentives for expanding crop cultivation. “Burning biomass is not the answer to solving the climate crisis,” he said.