“This move is in line with Shell’s strategy to develop biofuels” that use sustainable feedstocks, Shell spokeswoman Natalie Mazey told Reuters.
Abengoa’s Hugoton, Kansas plant came online in 2014 with the capacity to produce up to 25 million gallons of cellulosic ethanol per year. It uses only “second generation” biomass feedstocks for ethanol production, meaning non-edible agricultural plant parts (such as stalks and leaves) that do not compete with food or feed grain.
Shell has offered $26 million for buy the ethanol plant as a “stalking horse” bid to start off the auction process, Reuters reports.
Shell has slashed its spending on biofuels ventures in recent years but appears to be getting back on track to develop alternative fuels with this bid to buy Abengoa’s plant.
The timing is good for the oil giant as the Paris climate deal and other environmental regulations are putting increasing pressure on the industry to reduce its carbon footprint in the US and abroad. The industry is also facing significant cost pressure as low energy prices persist.
Shell’s chief energy adviser Wim Thomas recently said the global oil oversupply, which has caused prices to plummet over the past two year, may not end until the second half of 2017.
“It can happen any time between the second half of this year and the second half of next year,” Thomas told Reuters.
The oil industry is also under threat from alternative fuels and battery technologies. These are rapidly gaining market shares of the transportation fuels sector, which account for 80 percent of the oil industry’s revenues.
The oil industry would be wise to diversify and biofuels offer opportunities, according to a recent Lux Research report.