Gunvor steps up biofuel bet as it uses record profits to diversify

Gunvor has agreed to acquire half of Varo Energy’s $600mn Dutch biofuel project in the latest sign of Europe’s privately held commodity traders diversifying after two years of record profits.

The Swiss group, which owns two biofuel plants, is stepping up its bet on the renewable fuel despite lower than expected growth in demand for the product.

Shell and BP both paused the development of European biofuel plants last month, while shares in Neste, a Finnish biofuels specialist, have fallen by almost half this year.

Gunvor, majority owned by Swedish billionaire Torbjörn Törnqvist, will share the costs of developing the planned facility to turn waste into sustainable aviation fuel (SAF) and biodiesel at the port of Rotterdam.

Like privately held rivals Trafigura and Vitol, it has been looking for opportunities to reinvest record profits earned in the past two years when the disruption in energy markets caused by Russia’s full-scale invasion of Ukraine boosted margins for the biggest commodity traders.

It made $1.3bn in net profit last year, the second highest in its history, following a record $2.4bn in 2022. In December it agreed to buy a Spanish gas-fired energy plant from BP.

While Gunvor makes most of its money trading oil and gas, it is also diversifying into greener energy products. It owns two biofuel plants in Spain and has traded the fuel, which is produced from renewable feedstocks, since 2009.

Varo chief executive Dev Sanyal insisted EU mandates requiring aviation fuels to contain at least 2 per cent SAF by 2025, rising to 6 per cent by 2030 and to 20 per cent by 2035, would ensure robust demand for biofuels this decade.

“Europe is a good neighbourhood to invest in this space,” he told the Financial Times, adding that Rotterdam port’s connections to northern European pipelines and local jet fuel infrastructure meant the site was ideally located.

Varo estimates that the plant, which has been designed to process 350,000 tonnes of waste feedstock a year, would be able to meet 7 per cent of the EU’s mandated SAF demand by 2030.

Swiss-based refiner Varo, which is owned by US private equity group Carlyle and Vitol, was founded in 2012.

Sanyal joined from BP in 2021 and is implementing a strategy to transition Varo to supplying low and zero carbon fuels, partly by repurposing its existing refinery, bunkering and distribution infrastructure. The company has said it will sell no oil products by 2040.

Varo announced its plan to build the SAF manufacturing facility on the site of Gunvor’s Rotterdam oil refinery and terminal in September.

Sanyal said formal discussions about Gunvor joining the project as an equity partner started this year, adding that the investment was a “vote of confidence”.

“Large-scale production and adoption of SAF are critical to meeting the airline industry’s goal of achieving net zero emissions by 2050,” Törnqvist said, commenting on the Varo partnership.

The design process for the Rotterdam facility is scheduled to complete in the fourth quarter of 2024 and Gunvor and Varo expect to approve the project for development next year.

While some competitors have sought to develop new biofuel techniques, Sanyal said Varo had reduced risk and cost by relying on proven technology and repurposing existing pipeline and storage infrastructure on Gunvor’s site.

The plant is also being designed with the capability to produce either SAF or a fully renewable biodiesel called HVO, which can be used in any diesel engine, providing additional flexibility to respond to market conditions and regulatory requirements.

“One thing that’s becoming more and more apparent is that energy transition isn’t a straight line,” Sanyal said. “There will be peaks and troughs, so being able to sort of create flexibility in what you produce is very important.”