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.