Are we passing a tipping point towards wider SAF adoption & movement towards true commercialisation?

Summary:

• 2022 has been a very good year for sustainable aviation fuel.
• Volumes of both production and purchases are building to new records.
• Sustainable aviation fuel 2022 commitments exceed previous ten years' combined total.
• More SAF firsts keep piling up.
• Even with progress, challenges remains.

SAF 2022 commitments exceed previous ten years' combined total

To put the movement into context: in the previous 10 years there were a total of 50 major SAF offtake agreements announced, representing combined commitments of up to 18,981 million litres.

As an indicator of how much progress has accelerated since the COVID-19 crisis (and with it a spike in consumer awareness of aviation sustainability issues), nearly half of the volume of those earlier offtake agreements were announced in 2021.

Announced SAF offtake agreements: 2022 year to 30-Nov-2022

Source: ICAO.

The agreements, particularly the larger deals, have been concentrated around network airlines in North America and Europe, which is reflective of long term trends in SAF purchasing and supply.

Key deals struck during 2022 include:

• oneworld and its member airlines agreed to purchase up to 200 million gallons of SAF p/a from Gevo between 2027 and 2031, for a total commitment of 1 billion gallons (3785.4 million litres). The SAF is expected to be supplied from four airports in California: San Diego, San Francisco, San Jose and Los Angeles. The deal follows a similar agreement signed in Dec-2021 with Aemetis, under which eight oneworld members committed to the purchase of 350 million gallons of blended SAF supplied over seven years at San Francisco International Airport. These agreements are part of oneworld's commitment to have its member airlines make SAF account for 10% of their fuel use by 2030;
• Lufthansa signed a non-binding MoU with Shell for the supply of up to 594 million gallons (2248.5 million litres) of SAF between 2024 and 2030. The deal would use SAF produced from "four different approved technology pathways and a broad range of sustainable feedstocks", for supply at airports globally;
• Delta Air Lines signed an agreement with Gevo for the supply of 75 million gallons of SAF p/a over seven years, which represents a total commitment of 525 million gallons (1987.3 million litres). Gevo estimates that the value of the deal will be worth USD2.8 billion in revenue over its lifetime. This deal replaces a 2019 agreement between Delta and Gevo for 10 million gallons of SAF p/a;
• American Airlines signed an agreement to purchase 500 million gallons (1892.7 million litres) of SAF from Gevo over a five-year period. The deal meets approximately 20% of the airline's goal to replace 10% of jet fuel usage with SAF by 2030. Deliveries are expected to begin in 2026.

Even with SAF purchasing accelerating, these deals represent a relatively small proportion of global commercial airline fuel consumption.

According to the US Energy Information Administration, global jet fuel consumption before the pandemic (2019) was 414,452.7 million litres.

This means that the 2022 SAF deals are equivalent to a little under 5% of jet fuel consumption in a 'typical' year.

To add to this, most of the agreements are multi-year arrangements, spanning anywhere up to a decade. So, consumption will be spread out, and likely weighted towards the second half of the decade.

United Airlines buys into the SAF producer NEXT

In mid Nov-2022 United Airlines' venture capitalism unit announced a strategic investment of up to USD37.5 million in NEXT Renewable Fuels (NEXT).

The Houston-based company is developing a biofuel refinery in Port Westward (Oregon), with production expect to start in 2026.

The facility will ultimately have capacity to produce up to 50,000 barrels of SAF and other renewable fuels per day.

More SAF firsts keep piling up

In Jun-2022 the Swedish carrier Braathens Regional Airlines became the first airline to operate a commercial flight wholly powered by SAF.

The Malmö-Bromma service, using an ATR 72-600 powered with 100% SAF in both engines, was operated with fuel supplied by Neste.

The flight demonstrated that 100% SAF use is a safe and viable option for commercial air transport.

In an important milestone for SAF use outside Europe and North America - Colorful Guizhou Airlines operated China's first SAF-powered commercial flight in late Nov-2022. Using SAF from SINOPEC Zhenhai Refining & Chemical Corporation, and made from used cooking oil, the airline operated an A320neo from Ningbo to Guiyang via Renhuai.

SAF flights continue to build

Over the first 11 months of 2022 commercial airlines have operated more than 72,000 scheduled flights powered, at least in part, by SAF.

Cumulative SAF powered commercial flights: Oct-2019 to Nov-2022

Source: Air Transport Action Group.

In total, there have been a little more than 455,000 SAF-powered commercial flights since the first trial service using SAF was conducted in 2011.

ICAO comes to the party with ACT-SAF

In Jun-2022 ICAO formally launched the 'Assistance, Capacity-building and Training for Sustainable Aviation Fuels' (ACT-SAF) programme.

ACT-SAF is designed to support global SAF capacity building under the ICAO umbrella by facilitating the establishment of partnerships and cooperation among ICAO member states, SAF suppliers, and other members of the supply chain.

The programme also supports the development of feedstocks for SAF, which is a crucial element for global SAF capacity building.

Commercialisation of SAF faces two chief problems when it comes to feedstocks: volume and price.

Existing feedstocks are mostly only available at small scales and are expensive to turn into SAF. Resolving feedstock issues, while also making sure that feedstock supplies meet their own environmental and sustainability criteria, will be crucial to the future success of SAF.

Even with progress, challenges remains

Despite the record number and volume of SAF deals in 2022, and the improving outlook for SAF production as new facilities come on line, there are still a range of challenges to be resolved in the sector.

SAF remains scarce - according to IATA, airlines "purchased every drop of the 125 million litres of SAF that was available" during 2021, and around 150 million litres are expected to be produced in 2022.

SAF still represents less than 0.1% of global aviation fuel consumption, but with more than USD25 billion in SAF purchase offtake agreements now in place, production is expected to ramp up rapidly.

Projections are that commercial airlines will need somewhere around 5 billion litres by 2025, and as much as 30 billion litres by 2030, in order to meet the environmental objectives.

SAF remains narrowly distributed - as of the end of Oct-2022, there were 58 airports that were supplying SAF for regular scheduled commercial operations on an ongoing basis.

Of these, 32 are located in Europe, 21 are located in North America, four are in Asia, and one is in Oceania.

There were a further 22 engaged in batch deliveries - 11 in the EU, nine of them in North America, one in Africa, and one in Oceania.

Airports worldwide supplying SAF for air transport operations

Source: ICAO.

SAF remains expensive - historically, the cost of feedstocks inputs, the small-scale nature of production, and the novelty of supply/distribution have meant that SAF prices have remained well above those of fossil-based fuels.

According to IATA, the price of SAF was somewhere between two and four times that of fossil-based jet fuel during 2021.

However, the increasing price of oil and blow-out in refinery margins over 2022, and the continued reduction in SAF prices, has meant that the cost gap has narrowed.

According to GlobalAir, which tracks fuel price at 3215 FBOs across the US, as of 30-Nov-2022 jet fuel prices were between USD6.68 and USD8.39 per gallon (1 gallon is approx. 3.785 litres), with an average of USD6.94 per gallon.

Meanwhile, SAF was between being sold at between USD8.28 and USD8.86 per gallon, with an average of USD8.64 per gallon - a premium of 24.5%.

SAF is critical to aviation achieving its stated goals of carbon-neutral growth and reducing its emissions back to 2005 levels by 2050.

It remains the most realistic, technologically mature, and near term option for airlines looking to reduce their greenhouse gas emissions.

The year 2022 was not just another year of incremental progress but a major tipping point towards wider SAF adoption and movement towards true commercialisation.

Widely available and price-comparable SAF will speed aviation towards its net-zero ambitions.