APPEC: Feedstock flexibility, emissions offsets credibility needed for SAF boost in Asia

Flexibility in sourcing sustainable aviation fuel feedstock and credibility for its emission offsets claims are key hurdles before its use in Asia can greatly expand, according to industry players at the Asia Pacific Petroleum Conference in Singapore.

This comes as "neat" SAF producers like Neste are exploring expanding the feedstock pool with prospects like novel vegetable oil and lignocellulosic biofuels (plant-based feedstock with almost negligible land usage and carbon intensity impact), as feedstock availability and its cost play a huge role in bridging the price gap between SAF and conventional jet fuel. Neat SAF is a jet fuel produced from blend of biomass materials-based feedstock with a certain percentage of fossil-based jet fuel.

"There is a large pool of feedstock available such as novel vegetable oil, lignocellulosic biofuels, waste and residue which is sustainably viable too as it doesn't alter land use impact," Neste's acting executive vice president, Sami Jauhiainen, told S&P Global Commodity Insights, the organizer of the APPEC conference, on its sidelines.

Feedstock used for SAF, typically waste oils and animal fats, was estimated at 40 million mt by 2030 by industry sources. This is expected to surge further with development of new raw material pool such as novel vegetable oil, produced from crops grown on degraded land or on acreage with more than one crop to ensure no negative impact on food production.

Speaking to a conference panel, Harry Ubhi, Asia-Pacific head of business development and origination at Italy's Eni, said citing the increased growth of HEFA, a dominant renewable fuel produced from vegetable oil, waste oil and animal fats and and used as an SAF feedstock.

"There is a demand increase forecast for HEFA by at least 50% in next couple of years," Ubhi said. "Henceforth, prices and availability of feedstock is going to be a challenge in coming years. However, we are working on growing the production of sustainable feedstocks. In one of our projects with farmers in Africa, we are producing oilseed in marginal land for vegetable oil feedstock."

Beyond developing future feedstock like novel vegetable oil, the industry also has its eyes set on e-fuels, or SAF produced using carbon obtained from non-biogenic sources like direct air capture.

"Today, if everybody just focuses on HEFA, very very quickly, we all run out of feedstock. And so, actually the focus at Shell is really on the e-fuels that is really going to be for the future," said Doris Tan, head of Shell Aviation Asia Pacific & Middle East.

Credibility through digitalization

With a feedstock crunch and limited SAF production capacity, industry players at the conference have largely voiced support of using "book-and-claim," a system where offsets can be used, and technology can be used to make the process more efficient and transparent.

Shell, Accenture, and American Express Global Business Travel jointly launched "Avelia," one of the world's first blockchain-powered digital SAF "book-and-claim" solutions for business travel. The system allows primarily corporate buyers to source their SAF needs based on their total aviation footprint in one transaction, rather than sourcing through each airline individually. This means that SAF can be sourced for flights with airlines or out of airports that do not have SAF supply available which in turn can be reported as a standalone disclosure under a company's voluntary carbon emissions reporting.

In most parts of the world, SAF is still highly scarce, if available at all. As such, even though corporates may wish to pay the premium that SAF entails and have the funds to do so, it is simply not available for the particular flights their employees are taking.

"We are looking at voluntary demand," Tan said. "Companies have [environmental, social and governance] needs which can drive demand, but they also want to be sure where their efforts are going. So we are using technology such as blockchain to ensure transparency and trackability in system to build trust and further sector offtake."

The book and chain system is expected to stimulate demand and, therefore, supply, lowering costs and accelerating the industry's pathway towards net-zero emissions.

The technological advancement was also discussed as a key factor in they can enable more accurate greenhouse gas emissions tracking and transparent reporting across supply chains. This in turn can provide more credibility to a more effective monitoring of carbon offsets.

"Credibility is everything when it comes to sustainable solutions," Jauhiainen said. "We have seen what kind of criticism carbon credit face in markets, and we don't want the people to see SAF the same way."

Carbon market investments have slowed or stalled as investors exercise a high level of caution, after several companies were targeted by lawsuits for using low-quality carbon credits to make carbon neutrality claims.

Policy incentive remains key

However, policy remains the key driver of SAF production and utilization, said industry players at the conference, adding that there have been discussions on how means like mandatory blending has been working so far.

For major SAF producer Neste, it maintains that Asia will require mandatory blending for the product to take off.

"The investment is really led by mandate kind of policy such as in US and EU approach is needed for long-term structural demand helping commercialize new technology," Jauhiainen said. "There is also a need of relevant framework that applies both to mandatory and voluntary markets."

Already, individual countries are making similar moves on their own. However, policy uniformity amongst them is far from possible in near future.

While India plans to mandate the use of 1% SAF for its domestic airlines by 2025, SAF is set to replace 10%, or 1.34 million mt, of fuel used by Japanese airline companies by 2030.

Qantas and Airbus also announced that they will jointly invest $1.34 million in a biofuel refinery being set up in Australia's Queensland state that would convert agricultural byproducts into SAF.

Cebu Pacific Air in the Philippines has signed a long-term strategic partnership with Shell Eastern Petroleum to make SAF more widely available for its fleet via the supply and purchase of SAF in the Asia-Pacific region and the Middle East, with an initial volume of at least 25,000 mt/year. The refinery is expected to produce up to 100 million liters/year of SAF, with construction due to start in 2024.

Industry experts argued that a similar bloc-led initiative would be preferable in Asia to realize the maximum potential for the SAF market in the region, individual countries are making similar pushes.

Globally, the International Air Transport Association passed a resolution in 2021 committing members to achieve net-zero carbon emissions from their operations by 2050 and a similar agreement was made by UN-led International Civil Aviation Organization in 2022.

"As of now, biofuel is expensive than jet fuel depending on the carbon tax in future," Tan said. "There's voluntary demand in market and block chain demand can be used to incentivize it."

Platts assessed Asian used cooking oil-based SAF on Sept. 7 up 1.73% to $1,810/mt, while palm fatty acid distillate-based SAF fell 1.32% to $1,548.19/mt. Platts is part of S&P Global.