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Airlines and other end-users with ambitions to hit certain emissions reductions targets by 2030 are counting on low-carbon fuels such as sustainable aviation fuel (SAF).
But there is not enough available today. Plus, high costs could translate to waning appetites.
Though SAF accounts for less than 0.1% of the total jet fuel used by major airlines, demand still far outweighs supply, industry experts say, and the trend is expected to continue. However, producers should not rejoice just yet. Growing pains are evident. As more airlines join industry leaders in rolling out decarbonization goals and some governments mandate or incentivize low-carbon fuels, producers are grappling with financing, technical constraints and costs.
Neste is among the world’s biggest producers of renewable fuels, having teamed up in the past with companies such as Kinder Morgan Inc., Hightowers Petroleum, PTL Marine and United Airlines among others. Speaking during the recently held BNEF Summit in California, Neste Vice President Carrie Song pointed out that the company’s planned SAF investments plus that of industry peers will not be enough to meet SAF demand in the next 10 years and beyond.
“You see the level of growth picking up. And today we supply about 365 million [U.S. gallons]. Later this year that number will grow to 500 million… and then it will get to the 750,” Song said. “But it takes time. … It’s not about a competition across different technologies because when you add them all together, you will still need fossil fuel.”
SAF, a liquid fuel that can be blended with conventional jet fuel without need for new planes or engines due to its similar chemical composition, can be produced using a variety of feedstock. These include used cooking oil (the most common feedstock), municipal solid waste, seaweed and captured CO2. Its lower lifecycle emissions are seen as a key lever for airlines looking to reduce carbon emissions.
Song emphasized the need for collaboration to match the best usable technology for the right segments. Neste aims to help its clients deliver 20 million tons of carbon reduction annually by 2030. In 2022, that number was more than 11 million tonnes, Song said, noting the company is well on track.
Challenges to overcome
Like most of its peers, Hong Kong-based airlines Cathay Pacific pledged to convert 10% of its total fuel use into SAF by 2030.
However, “all the forecasts that we have indicate there is going to be a gap of 30 to 40% between supply and demand by 2030,” said Kristof Van Passel, head of procurement operations and developments for Cathay Pacific. “And we expect that gap to widen because there’s more and more governments that have come online with new regulations. That is pushing up demand on the one hand, and on the other hand, supply is also coming online slower than anticipated because of technology constraints, because of financial constraints.”
Despite the gap, he said the company is focused on fulfilling its pledge. In 2023, for example, Cathay Pacific used a batch of SAF blended and supplied by ExxonMobil Asia Pacific to fuel four cargo flights. The SAF was created 100% from used cooking oil.
While the use of SAF comes with environmental benefits, there are also challenges to overcome. SAF sells at a premium. Costs can be more than double that of conventional jet fuel.
The reason? Production methods, according to Song.
Neste uses cooking oil to make its biofuels, collecting from more than 80,000 different restaurants, hotels and other establishments. “The feedstock sources and also the collection processes in the production process is more expensive and complex compared to the conventional fuel that is coming from the crude oil,” she said. Plus, “we ensure every step of our production is fully auditable and traceable from the sustainable requirement perspective and that is also associated with a cost.”
When it comes to climate impact, conventional fuel doesn’t really have a price tag attached, Song said, noting it’s not an apples-to-apples comparison.
For the airline industry, fuel costs comprise about 30% to 40% of total operating cost, Van Passel said, adding lower-carbon fuels can be two to three times more expensive than conventional jet fuel.
“Given the magnitude of the cost, it would drive any airline into losses within a matter of months,” Van Passel said.
Uptake is a challenge, according to Matthew Wittman, chief commercial officer for First Ammonia Motors.
“I think there’s a general desire by most,” Wittman said, speaking on a separate panel. Despite acceptability, affordability could pose challenges to delivering on commitments.
Financing is also a concern. Session moderator David Doherty, head of oil and renewable fuels research for BloombergNEF, pointed out that bank financing for low-carbon projects declined in 2022, compared to 2021, and the industry is starting to see rates rise.
Derisking projects is key to overcoming financing hurdles, according to Chris Ryan, president and COO of Gevo, a Colorado-based renewable fuels company that is building its first commercial SAF plant in South Dakota.
“The name of the game is to reduce risk as much as possible,” Ryan said.
All technologies being used are commercially proven, and the company lined up offtake agreements before plant engineering began, he added.
“We’re saying to the airlines, ‘Here’s the SAF. You pay us X dollars per gallon. You get all the carbon value. You get the environmental benefits,’” Ryan said. “So that net, you’re in the ballpark of fossil-based jet price. The issue is, well, who’s willing to take the risk on carbon value. Is policy certain? No, it’s not certain. So, there’s risk there.”
Bridging the gap requires government support and policies to help lower prices, Van Passel said.
The U.S. Inflation Reduction Act offers a SAF credit of $1.25 for each gallon of SAF in a qualified mixture. To qualify for the credit, the SAF must have a minimum 50% reduction in lifecycle greenhouse gas emissions, according to the Internal Revenue Service. A supplemental credit of $0.01 for each percent that the reduction exceeds 50% is also available.
The EU is taking more of a stick approach. As part of the EU’s Fit for 55 package, it mandates that 2% of all aviation fuel at airports be SAF from 2025. The percentage increases to 70% by 2050.
For Song, meeting the SAF 10% target by 2030 calls for leadership—including in voluntary markets—stepping up and showing their desire for lower-carbon fuels. Hopes are the rest will follow with advocacy backed by public stakeholders.
When asked what he’d say to a policymaker and a banker to make life as a SAF producer easier, Ryan put it simply: “Policymaker: reduce risk. Investor: take risk. That would be the message.”
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