LONDON - Shell SHEL.L will pause construction work at one of Europe's largest biofuel plants due to weak market conditions, the latest low-carbon project to suffer a setback as CEO Wael Sawan strives to boost returns.

While it is rare for companies to suspend development of projects underway, rival BP BP.L also said last week it was pausing two biofuel projects in Germany and the U.S.

Under Sawan, who took office in January 2023, Shell has scrapped and sold renewable and hydrogen projects, retreated from European and Chinese power markets and sold refineries in order to focus on the most profitable operations, primarily in oil and gas.

Shell shares were up 1.3% at 1106 GMT, and have gained more than 12.5% so far this year.

The company gave the green light for the development of the 820,000-ton-a-year plant in the Netherlands in September 2021, with plans to bring it online in 2025. The project is now expected to start production towards the end of the decade.

The facility at Shell's chemicals park in Rotterdam was slated to produce sustainable aviation fuel and renewable diesel made from waste.

Biofuel prices have come under pressure in recent months due to weaker demand in Europe, including after Sweden cut a biofuel mandate, and rising supplies in the U.S.

The market is expected to remain well supplied in the coming years as more production comes on line, analysts said.

Shell said in a statement that following the decision to pause construction, "contractor numbers will reduce on site and activity will slow down, helping to control costs and optimise project sequencing".

UBS analyst Joshua Stone said the pause was consistent with Shell's strategy to focus on returns.

"The delays further highlight that the advanced biofuels market is not an easy one. The oil majors have dipped their toes and found it challenging," Stone said.

Shell will also consider an impairment for the project and will provide further details in its quarterly trading update on Friday, it said.

"Temporarily pausing on-site construction now will allow us to assess the most commercial way forward for the project," Shell's downstream head Huibert Vigeveno said in a statement.

"We are committed to our target of achieving net-zero emissions by 2050, with low-carbon fuels as a key part of Shell's strategy," he added.

(Reporting by Arunima Kumar in Bengaluru; Editing by Jason Neely, Louise Heavens and Jan Harvey)