This Friday marks the launch of a new U.S. price benchmark for the rapidly accelerating market for sustainable aviation fuel (also known as bio-jet fuel or simply abbreviated SAF). Energy and commodity market intelligence provider Argus has announced that it is debuting a new, daily sustainable aviation fuel price index for the U.S. West Coast, responding to the need for greater price transparency in the renewable fuel market, as governments and airlines seek dramatic reductions in greenhouse gas emissions.
Commodity demand for SAF has taken off in recent months, due to government incentive programs on the U.S. West Coast (such as California’s Low Carbon Fuel Standard) and self-directed initiatives from the airlines.
Unlike conventional jet fuels, which are typically refined from crude oil distillates, SAF is derived from recycled inputs like used cooking oil, agricultural residues and wood waste. It can also be mixed with conventional jet fuel and used in an aircraft in much the same way as petroleum-based jet fuel.
The new Argus price for U.S. West Coast SAF will be published in ¢/USG, and will reflect the differential of SAF to Los Angeles prompt conventional jet fuel.
Transitional commodities
Also on Friday, Gunvor Group—one of the world’s largest independent commodities trading houses by turnover, and a strategic investor in industrial infrastructure—announced that it has closed a new $540 million borrowing base facility to support its biodiesel trading operations. The facility is part of a larger strategy to promote cleaner products with sustainable feedstock components in alignment with EU climate targets. According to a company announcement, the syndication launched at $400 million and was oversubscribed to $595 million.
“Biofuels, along with other ‘transitional’ commodities, are increasingly important to Gunvor’s trading mix,” said Gunvor Group CFO Muriel Schwab said on Friday. “Our banking partners have expressed considerable support for trading cleaner products as Gunvor pursues its Energy Transition strategy.”
While Gunvor’s biofuel trading desk has been active since 2009—involved throughout the carbon reduction supply chain—interest has, unsurprisingly, skyrocketed of late. At the end of June 2020, approximately 50 percent of Gunvor’s total trading volumes consisted of “transitional” commodities, including biofuels, natural gas, and LNG.
Gunvor operates several blending facilities in Asia, the United States and Europe, where to prepares biofuels for end-consumers around the world. Gunvor also trades CO2 tickets to complement its own CO2 reduction strategy.
Sky-high CAGR
Market forecasts anticipate the global market for sustainable aviation fuel could grow from $66 million in 2020 to $15.3 billion by 2030, a compound annualized growth rate of 72.4 percent.
Growth drivers include rising global pressure to reduce greenhouse gas emissions, increasing air passenger traffic, and the higher fuel efficiency of biofuels. Government initiatives (such as tax reductions on the use of green and clean aviation fuels) could accelerate expanded adoption, particularly in the market for military aviation and applications, where government focus on the promotion of bio-jet fuels has picked up in several countries.
In 2019, the Dutch Ministry of Defense announced plans to implement biofuels into its aviation fleet, with plans to fuel all F-16 Fighting Falcon jets at its Leeuwarden air base using biofuels. Additionally, India’s Air Force is also expected to phase in biofuel for its transport fleet and helicopters, having received clearance from its Center for Military Airworhtiness and Certification (CEMILAC) in 2019.
Total market growth is expected to be highest in North America, home to the world’s largest number of aircraft fleet and highest yearly passenger numbers. Multiple initiatives are already in place to support this development in the U.S. and Canada, including the Commercial Aviation Alternative Fuel Initiative (CAAFI), Midwest Aviation Sustainable Biofuels Initiative (MASBI), and Canada’s Biojet Supply Chain Initiative, among others.
Deal news
The new pricing index comes amid a relatively brisk market for sustainable fuel suppliers, despite the broader doldrums for the aviation industry due to covid-19.
In August, Finland’s Neste, the world’s largest producer of renewable diesel and SAF, announced that it had reached agreements to supply Alaska Airlines, American Airlines and Jet-Blue with SAF for all flights out of San Francisco International Airport (SFO).
Neste is already delivering sustainable fuel to the airport via pipeline—an infrastructure development that San Francisco Airport has called a “climate quantum leap”—with Neste fuels available to all commercial, cargo and business aviation entities operating at that airport.
Neste’s SAF can be used as a drop-in fuel with existing aircraft engines and airport infrastructure, meaning that it requires no additional investment or retrofitting. In its neat form and over the lifecycle, Neste says its SAF helps to reduce greenhouse gas emissions by up to 80 percent, compared to conventional jet fuel.
Neste’s annual sustainable aviation fuel capacity is currently at 100,000 tons (34 million gallons), but is on track to reach annual production capacity of 1.5 million tons (515 million gallons) of SAF annually by 2023, with expansions underway at its refineries in Rotterdam and Singapore.
Earlier this fall, multinational conglomerate Honeywell—which was an early mover in developing the market for sustainable aviation fuel market by pioneering a process together with Italian oil major Eni, UOP Ecofining, used to produce Honeywell Green Jet Fuel—announced that France’s Total will use UOP Ecofining process to produce sustainable jet fuels at its Grandpuits platform in France.
