FEATURE: Sustainable aviation fuel takes off globally amid some turbulence

Sustainable aviation fuel is gaining traction as climate change actions gather momentum but numerous roadblocks remain, with SAF's uptick hinging on favorable pricing, feedstock certainty and availability, as well as the willingness of governments and regulators to provide incentives, industry sources said.

"No one wants to take unnecessary risks ... I think what is crucial is that the sooner, the better," Jan Toschka, president, Shell Aviation, said at the Asia Pacific Petroleum Conference 2022.

Prior to COVID-19, international aviation accounted for about 2%-3% of global carbon emissions. SAF is seen as a key pillar in decarbonizing aviation -- one of the hardest sectors to abate -- and deliver the performance of conventional jet fuel but with a significantly smaller carbon footprint on a life cycle basis.

In October 2021, the International Air Transport Association member airlines committed to achieve net-zero emissions by 2050. This landmark decision brought the industry in line with the Paris Agreement's 1.5 C goal.

"The [SAF] ambition needs to be set globally and that depends on the various regions, governments, regulators, and how they want to implement it," Toschka said.

While SAF-related mandates might work better in some parts of the world than the other, "a mandate per se does not work" as the momentum must be at a level which is almost agreed globally, Toschka said.

Regulatory visibility undoubtedly benefits the SAF industry, Sami Jauhiainen, vice president APAC Renewable Aviation at Finland's Neste said at the same event, noting that the EU's ReFuelEU Aviation initiative was one such example.

The initiative, which forms part of the EU's Fit for 55 in 2030 package, includes obligations on fuel suppliers to distribute SAF to encourage its uptake by airlines.

The IATA in a statement in June called for governments to urgently put in place large-scale incentives to rapidly expand the use of SAF.

"Governments don't need to invent a playbook. Incentives to transition electricity production to renewable sources like solar or wind worked. As a result, clean energy solutions are now cheap and widely available," Willie Walsh, IATA's director general said at the time. "With similar incentives for SAF, we could see 30 billion liters available by 2030."

Feedstock clarity and certainty were also vital aspects to hasten the uptake of SAF.

"If you invest in a bio-plant and let's talk first generation only to keep it simple, then you probably need well above a billion dollars," Toschka said.

"If there is very little certainty of what feedstock can be taken, if you have very little certainty to plan your feedstocks supply chain, and even if you get all this right, you don't really know where your product can be sold, which country, which regulated market, then that stalls down the entire investment," he said.

Robust sustainability standards that establish a kind of minimum threshold around what can be used for SAF production and what cannot are also required, Jauhiainen said.

"But if they [standards] are defined too narrowly, there is a risk that the competition focuses on fewer raw materials and then due to the scarcity, the cost of those increases," he added.

Tough Asia markets

Airlines operate in a competitive market that makes it difficult to voluntarily substitute fossil jet fuel with SAF, particularly if their competitors are not doing so, Jauhiainen said.

"So, in reality, what enables many airlines at the moment to use SAF is that they are basically collecting the money and funding the SAF premium from their own end-customers, including companies with business travel activities or cargo shippers, who want to reduce their own carbon footprint and this funding then enables the airlines to procure their SAF," Jauhiainen said.

In Asia, Japan and Singapore are among the few countries making a stride in this direction, while many others were still assessing plans amid limited feedstock availability, sources said separately.

Many airlines are already struggling with high jet fuel prices, a Southeast Asian importer said.

"So SAF is still far away for most of Asia, unless the government enforces some regulation for it, that we currently don't have," he said.

Many refiners are also not yet incentivized to upgrade their production toward SAFs, a regional trader said.

Lucrative jet fuel cracks are disincentivizing investments toward SAF, sources said.

The Platts FOB Singapore jet fuel/kerosene crack spreads against front-month Dubai swaps averaged $30.88/b Sept. 1-30 from an average of $37.56/b in August. However, prices in the last six months have stayed elevated at their highest levels since July 2008, when the crack spread was at an average of $35.60/b, according to data from S&P Global Commodity Insights.

"So, from the Asia perspective, while the West is certainly seeing the longer-term picture and moving forward, we are behind in terms of infrastructure and regulation. So, investments decisions in this environment are difficult from the supplier's perspective," the trader added.