Vary Energy Leans on Manure to Provide a Greener Future

Every day dozens of tanker trucks, many laden with pig manure and other kinds of agricultural waste, rumble through the gateway of an imposing steel-and-concrete plant in northeast Netherlands.

This pungent cargo will be mixed together into a slurry and pumped into massive tanks, where hungry bacteria will within weeks turn it into methane gas that will ultimately be sold to the energy grid to heat homes and generate electricity.

The gas is a biofuel — similar to the natural gas pumped out of offshore wells in the North Sea but, because of its biological origins, considered carbon neutral.

The recipe for success, said Fritz Ullrich, the plant manager, is keeping the microbes nourished with a steady stream of waste. “We have to coddle them,” he said on a recent morning. “They are our factory.”

Mr. Ullrich, who came to this job after running oil depots, seems bemused at finding himself tending bacteria. But the energy industry is going through wrenching changes, especially in Europe.

For the plant’s main owner, Varo Energy, a privately held oil refiner in Switzerland that sells diesel and gasoline at service stations across northwest Europe, biogas facilities like this one represent the future — or at least a slice of it.

The European Union and national governments like Switzerland’s are forcing suppliers of oil products to increase the proportion of the fuel they sell that comes from renewable sources to mitigate climate change. Russia’s efforts to use natural gas as political leverage in the war in Ukraine have added to the urgency to end dependence on fossil fuels.

As a result, companies that refine and sell oil are making significant investments that they would not have considered before. Varo bought an 80 percent stake in this biofuel plant in the Dutch municipality of Coevorden this year to gain a foothold in a business that is expected to grow rapidly. Shell, Europe’s largest energy company, and BP recently spent billions to acquire similar biogas companies.

Varo is not an oil giant like Shell or BP, but its executives, engineers and traders are dealing with the same shifting demands as the industry changes. In interviews, they seemed enthusiastic about this transition but remained cautious, spreading their bets because it is far from clear how regulations and the markets will evolve. The company itself has set a goal of net zero emissions by 2040.

“We have seen, every year, countries adapting and changing the rules,” said Theo Pannekeet, Varo’s executive vice president for new energies and innovation. “It is a very high-risk environment.”

At Coevorden, Mr. Ullrich is already supervising an expansion that will add 50 percent to the plant’s output. The company also plans to invest in equipment to chill and liquefy the gas, so that it can be used as an environmentally friendly alternative to diesel.

Looking ahead, Varo has a preliminary deal to supply the German airline Lufthansa with so-called sustainable aviation fuel, starting with a blend made from used cooking oil and later moving to hydrogen, considered by many to be the green fuel of the future.

The company’s future is still linked to oil — Varo owns and operates Switzerland’s only refinery, and a second one in Germany — but the company’s executives say they can profit from gradually becoming greener and helping customers achieve their clean energy goals. And under various national schemes intended to gradually reduce emissions or certify energy as green, Varo can also earn so-called biotickets that can be sold to polluting companies — providing another important source of revenue.

But this brave new world of energy has obstacles. For instance, there isn’t enough locally produced pig manure and other waste to keep the Coevorden plant going. That means Mr. Ullrich must scour the world for shiploads of spoiled corn and other agricultural detritus to fill its tanks. The plant even bought grain contaminated by an explosion that wrecked the port of Beirut, Lebanon, in 2020.

And the waste is not free. While natural gas prices soared last year in Europe, so did costs for the stuff used in biofuel as demand surged, contributing to a financial loss at the plant last year.

The global hunger for biofuels has led to questionable practices like cutting down forests for wood debris and growing crops for fuel instead of food. The total amount of appropriate waste and other inputs available is “many times smaller than the global demand for aviation fuel or shipping fuels or industrial gas supply” said Mark Brownstein, the senior vice president for energy transition at the U.S.-based Environmental Defense Fund, a nonprofit advocacy group.

Yet, Varo executives are confident that their foothold in European energy markets will help secure their future. Now that Germany is cut off from Russian natural gas, they figure, it will be hungry for a green alternative to generate electricity and to power factories that need a lot of energy like steel mills or chemical plants. The German border runs through a roadway just outside the biogas plant’s gate. “We are in the right ZIP code,” Dev Sanyal, Varo’s chief executive, said in an interview.

Varo, which had about 2,100 employees and an annual revenue of $26 billion in 2022, is an 11-year-old company that earns about $500 million a year refining crude and distributing and trading oil products. Yet the company’s owners — Carlyle, a private equity firm based in the United States, and Vitol, a commodities trading giant — realized that the business needed to prepare for changes ahead. Last year, they brought in Mr. Sanyal, who led the gas and renewable energy business at BP to shift direction.

Like other petroleum companies, Varo is trying to please several audiences: customers and regulators who demand clean energy, as well as the steady buyers of the gasoline, diesel and other products pumped out by its two refineries.

With environmental pressures growing, sticking to the status quo is not an option for oil companies. “If all they do is transform crude oil into refined products, at some point that is not attractive to do in Europe,” said Alan Gelder, the vice president for refining and chemicals at Wood Mackenzie, a consulting firm.

When Eduard Geus, a former Shell executive, took charge of Varo’s refinery in Cressier, Switzerland, last year, he was skeptical about the viability of the unit, which was built in 1966 in a forested area. But he said he realized that with petroleum-based fuels likely to still be in demand for some time, especially for aviation, a two-track course for the refinery made more sense.

That meant streamlining operations at the refinery to reduce energy consumption and emissions, while also planning new processing units for lower carbon fuels made from used cooking oil or debris from tree-cutting in Switzerland’s forests. Varo is already mixing small amounts of biofuel with the diesel and gasoline it produces for cars and trucks, but the company will need to go much further in the future.

Not everyone thinks Varo is doing enough. In October, a small band of demonstrators from a group called Debt for Climate Switzerland blocked the refinery’s entrance to demand a transition away from fossil fuels, but they were arrested by the police.

The government of Neuchâtel, the local Swiss canton, seems to want to keep the refinery open. It provides jobs for nearly 300 people and generates work for many others. Managers like Mr. Geus are careful to be good neighbors, recently running pipes carrying excess heat from the plant to homes in nearby villages. “It ties us still more closely to the neighboring communities, “ he said.

As Switzerland’s only refinery, supplying around a third of the petroleum products the country consumes, the Cressier plant also bolsters the country’s energy security. “It is good to have production on our land,” said Yves Lehmann, who runs the canton’s environment and energy department. “We are convinced that they will still have a role to play in the future.”