Unlocking opportunity: How will European refiners prosper in a low-carbon world?
Chippla Vandu talks about why European refiners should be optimistic about the future.
By Shell Catalysts & Technologies
Chippla Vandu, Senior Engineer at Shell Catalysts & Technologies, talks about why European refiners should be optimistic about the future and how innovation can unlock opportunities in a low-carbon and more sustainable world.
European refining has a long history, but as an industry we know that we cannot continue doing things the way we always have. Times and markets are changing, bringing challenges and opportunities as part of a more sustainable world.
This sense of optimism was no more apparent than at the 2023 European Refining Technology Conference (ERTC). On this, my first time at the conference, I was struck by a feeling of positivity among delegates – including refining and petrochemical companies, catalyst and chemicals manufacturers, and digital technology and service providers – with discussions and presentations emphasising innovation and forward-looking solutions.
The future of refining is rooted in sustainability
As I chatted with delegates and watched presentations, it became clear that sustainability had shifted to the top of the agenda, with more “conventional” topics receiving less attention.
For example, I attended an interesting presentation on optimising conventional refining processes – an important topic as owners still need to operate their assets economically and margins still need to be met – but the amount of apparent interest was less than I had expected.
In contrast, if you were talking about sustainability, then seating was at a premium, as was the case for a presentation by my colleague Svetlana van Bavel, Senior Process Engineer Gas-to-Liquids/X-to-Liquids at Shell Catalysts & Technologies. As with similar presentations, her insights on sustainable aviation fuel (SAF) provoked so much interest there was standing room only.
Industry leaders back sustainable aviation fuel
The overwhelming interest in Svetlana’s presentation reflects the growing importance of SAF to refiners. Indeed, I was keen to learn about the key players in this area – how developed their solutions are, any pilot projects and who is partnering with whom.
Through conversations and presentations, the message was clear: SAF is a viable, scalable option that can help refiners decarbonise their product slates. It is also crucial to the aviation industry as it tries to reduce its environmental impact. For example, the European Union’s (EU) ReFuelEU Aviation initiative mandates that jet fuel should consist of 70% SAF by 2050,1 a target that can only be achieved if there is a plentiful supply of high-quality SAF.
But how will SAF scale?
As regulations tighten, the demand for SAF will only increase – this we can be sure of. But less certain is how the industry will meet this demand.
SAF comes in two main types. First, bioSAF is produced from biowaste (designated Annex IX A and IX B feedstocks under the EU’s Renewable Energy Directive) such as agricultural residues, wood waste, municipal solid waste, used cooking oils and waste animal fats. Key challenges for bioSAF are feedstock availability, ease of processing and potential land-use competition with agriculture.
Second, synthetic SAF (also known as e-SAF or PTL [power to liquids]), which is made from renewable (green) hydrogen and CO2 captured from a point source or the atmosphere. Given growing renewable energy capacity and a relative abundance of water and CO2, there is general consensus that synthetic SAF will scale better and more sustainably than bioSAF.
However, views differ on how the final synthetic SAF will be synthesised. For example, some licensing companies, including Shell Catalysts & Technologies, use Fischer–Tropsch technology, whereas others see alcohol-based technologies as the most viable pathway.
Witnessing the level of debate on SAF is reassuring because it helps to drive innovation, which is good for the environment, refiners and the aviation industry.
Upbeat on hydrogen – but there are challenges ahead
Hydrogen was also high on the agenda, with some sessions dedicated to low-carbon hydrogen. A notable presentation by Boston Consulting Group suggested that production from European refineries has already peaked and is on the decline. This was a sobering message for refiners that are trying to find ways to continue operating at current scales. Potential routes exist in the production of renewable (green) and decarbonised (blue) hydrogen, but there are challenges to overcome before either can be scaled to the levels needed.
Renewable hydrogen is required for synthetic SAF production, however, as noted in one presentation, it is still perceived as novel and risky, despite electrolysers having been in operation for over 50 years. So, the narrative around renewable hydrogen was one of reassurance: it is not something new – though the technology has advanced considerably since the 1960s – but instead a potential option for refiners.
At the moment, however, renewable hydrogen is considered too expensive for many. As an alternative, decarbonised hydrogen, produced from natural gas (methane) with carbon capture and storage (CCS), is gaining more attention. Crucially, decarbonised hydrogen, which is expected to be cheaper to produce than renewable hydrogen, is seen as a bridging technology that can help manufacturers to continue operating at scale until the cost of renewable hydrogen reaches parity.
There was, nevertheless, an upbeat mood around decarbonised hydrogen and related CCS technology. With organisations like the Oil and Gas Climate Initiative and large-scale pilot projects such as Northern Lights and Aramis helping to accelerate CCS deployment (Shell is one of the key partners in both), there are high hopes that decarbonised hydrogen can fulfil its temporary role in meeting growing demand for low-carbon hydrogen.
Final thoughts
As the industry moves towards more sustainable and innovative products, collaboration to accelerate innovation and technology deployment will become increasingly important. For example, Shell is leveraging the benefits of strategic partnerships and collaborations with large and small companies that develop specialised catalyst and refining technologies, and licensing packages.
It is also encouraging to see more and more start-ups build a presence across the sector. The agility of these companies enables them to challenge conventional business models, which in turn drives larger companies to move faster and be more innovative.
Events like ERTC are useful because they enable us to chat directly with others who are on the same journey and face similar challenges. Certainly, seeing how different companies are addressing these concerns forces us to ask important questions of ourselves: are we doing the right things? Can we do them better? Can we do them faster? Events such as ERTC can help us answer these questions.
Legal Disclaimer
Legal Disclaimer
The companies in which Shell plc directly and indirectly owns investments are separate legal entities. In this content “Shell”, “Shell Group” and “Group” are sometimes used for convenience where references are made to Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this content refer to entities over which Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations”, respectively. “Joint ventures” and “joint operations” are collectively referred to as “joint arrangements”. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest.
This content contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “aim”, “ambition”, ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, “milestones”, ‘‘objectives’’, ‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this content, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, judicial, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; (m) risks associated with the impact of pandemics, such as the COVID-19 (coronavirus) outbreak; and (n) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this content are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Shell plc’s Form 20-F for the year ended December 31, 2021 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this content and should be considered by the reader. Each forward-looking statement speaks only as of the date of this content, 20 May 2022. Neither Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this content.
Also, in this content we may refer to Shell’s “Net Carbon Footprint” or “Net Carbon Intensity”, which include Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions. The use of the term Shell’s “Net Carbon Footprint” or “Net Carbon Intensity” are for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.
Shell’s operating plan, outlook and budgets are forecasted for a ten-year period and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next ten years. Accordingly, they reflect our Scope 1, Scope 2 and Net Carbon Footprint (NCF) targets over the next ten years. However, Shell’s operating plans cannot reflect our 2050 net-zero emissions target and 2035 NCF target, as these targets are currently outside our planning period. In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans to reflect this movement. However, if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target.
This content may contain certain forward-looking non-GAAP measures such as cash capital expenditure and divestments. We are unable to provide a reconciliation of these forward-looking Non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile those Non-GAAP measures to the most comparable GAAP financial measures is dependent on future events some of which are outside the control of Shell, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Shell plc’s consolidated financial statements.
The contents of websites referred to in this content do not form part of this content.
We may have used certain terms, such as resources, in this content that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov
