Gunvor has agreed to acquire a 50% stake in Varo Energy’s $600 million Dutch biofuel project, marking a significant move in the diversification strategies of Europe’s privately held commodity traders following two years of unprecedented profits.
Gunvor’s Investment in Renewable Energy
The Swiss group, which currently operates two biofuel plants, is increasing its investment in renewable fuels despite a slower than anticipated growth in demand.
This decision comes at a time when Shell and BP have paused the development of their European biofuel plants, and shares in Neste, a Finnish biofuels company, have seen a significant decline this year.
Strategic Partnership and Development Plans
Gunvor, primarily owned by Swedish billionaire Torbjörn Törnqvist, will share the development costs of a facility aimed at converting waste into sustainable aviation fuel (SAF) and biodiesel at the port of Rotterdam.
Similar to its privately held rivals, Trafigura and Vitol, Gunvor is reinvesting the substantial profits earned over the past two years due to market disruptions caused by Russia’s invasion of Ukraine.
Financial Performance and Expansion
Gunvor reported a net profit of $1.3 billion last year, the second highest in its history, following a record $2.4 billion in 2022. Additionally, in December, it agreed to purchase a Spanish gas-fired energy plant from BP.
Although Gunvor’s primary revenue stream comes from trading oil and gas, the company is expanding into greener energy products, having operated two biofuel plants in Spain and traded renewable feedstock-based fuels since 2009.
EU Mandates and Future Demand
Varo Energy’s CEO, Dev Sanyal, emphasized that EU mandates requiring aviation fuels to contain at least 2% SAF by 2025, rising to 6% by 2030 and 20% by 2035, will ensure strong demand for biofuels in the coming decade.
He highlighted that Europe is a favorable region for investing in this sector, with Rotterdam port’s extensive connections to northern European pipelines and local jet fuel infrastructure making it an ideal location.
Plant Capacity and Regulatory Compliance
Varo estimates that the plant, designed to process 350,000 tonnes of waste feedstock annually, could meet 7% of the EU’s mandated SAF demand by 2030.
Swiss-based Varo, founded in 2012 and owned by US private equity group Carlyle and Vitol, is transitioning to low and zero carbon fuels under Sanyal’s leadership.
The company plans to cease selling oil products by 2040, repurposing existing infrastructure to support this transition.
Project Timeline and Technological Approach
Varo announced plans to build the SAF facility at Gunvor’s Rotterdam oil refinery and terminal in September.
Formal discussions with Gunvor began this year, with the investment seen as a vote of confidence.
The design process for the Rotterdam facility is set to complete in the fourth quarter of 2024, with project development expected to be approved next year.
Flexibility and Innovation in Production
While some competitors pursue new biofuel technologies, Varo has opted to minimize risk and cost by using proven technology and repurposing existing infrastructure.
The plant will be capable of producing either SAF or fully renewable biodiesel (HVO), which can be used in any diesel engine, providing flexibility to adapt to market conditions and regulatory requirements.
Strategic Importance of Flexibility
Sanyal noted the importance of flexibility in production given the non-linear nature of the energy transition.
The ability to produce varying types of biofuels is crucial for navigating the peaks and troughs of market and regulatory landscapes.
Conclusion
Gunvor’s investment in the Dutch biofuel project with Varo Energy signifies a strategic bet on the future of renewable fuels, leveraging record profits to diversify and strengthen its position in the green energy sector. This move underscores the critical role of sustainable aviation fuel in achieving the airline industry’s goal of net-zero emissions by 2050.