Japan’s JAL continues to add to SAF supply pipeline with Gevo deal

Japan Airlines (JAL) inked a sustainable aviation fuel (SAF) supply deal with Gevo in the second of a number of expected agreements between the American producer and the members of an airline alliance, oneworld, as momentum continues to build incrementally for the clean fuel.

In what was JAL's third offtake deal, the airline will buy 5.3 million gallons/year of SAF for five years, with deliveries expected to begin in 2027, Englewood, Colorado-based Gevo said 7 June. In February, JAL inked a deal with Cupertino, California-based Aemetis to buy 90 million gallons of blended SAF over a seven-year period. The blended aviation fuel will be 40% SAF and 60% kerosene-based jet fuel.

JAL and Gevo's deal stems from a March memorandum of understanding between oneworld and the producer that could lead to the purchase of up to 200 million gallons of SAF. Members of the oneworld alliance committed in 2021 to use SAF for 10% of their fuel needs by 2030. In March, Gevo agreed to supply oneworld member British Airways with 30 million gallons per year of SAF.

SAF can reduce aviation emissions by up to 80% compared with conventional kerosene during its life cycle, according to the International Air Transport Association.

In 2020, SAF accounted for about 0.05% of global aviation fuel supplies, according to the International Council on Clean Transportation (ICCT), but a recent study by the nonprofit indicates SAF is expected to be the aviation sector's strongest option for cutting its emissions, because, as a drop-in fuel, no major changes to aircraft are needed.

Oneworld members ink deals

Aemetis also signed supply deals with JAL's fellow oneworld members Alaska Airlines in May and Qantas in March. Alaska Airlines will buy 13 million gallons of blended SAF over seven years while Australia's Qantas will buy 35 million gallons of blended SAF over the same number of years. The value of the Qantas contract is about $250 million, Aemetis said.

Two other US airlines have also signed deals in recent months with Aemetis and Gevo. In April, JetBlue said it would buy 125 million gallons of blended SAF over 10 years from Aemetis in a deal valued at $530 million. In March, Gevo agreed to supply Delta Air Lines with 75 million gallons/year of SAF for seven years. Gevo estimated the deal should generate about $2.8 billion in revenue. It replaced a 2019 deal to buy 10 million gallons/year.

Gevo plans to produce over 150 million gallons of SAF per year by 2025 from crop residue that is turned into ethanol and then aviation fuel. The company expects its first "net-zero" plant in Lake Preston, South Dakota—which will produce the company's SAF—to begin operations in 2025. According to a May company presentation, Gevo will break ground in South Dakota in 2022 and full construction will begin in 2023.

While that plant and Aemetis' Riverbank, California, SAF plants are yet to enter service, Fulcrum BioEnergy said 24 May that its Sierra BioFuels Plant near Reno, Nevada, had begun commercial operations. The facility converts landfill waste into renewable syncrude that then undergoes refining to produce SAF. The company plans to expand its model across multiple US sites and be producing about 400 million gallons/year of SAF.

Fulcrum also has a strategic partnership with JAL. The venture, with partners Marubeni Corporation and the Japan Overseas Infrastructure Corporation for Transport and Urban Development, would see JAL as the offtaker from production sites run by Fulcrum and Marubeni.

Another US producer is also in expansion mode. World Energy said 22 April it was teaming up with US-based industrial gas and chemicals giant Air Products on a $2 billion expansion of the former's SAF production and distribution hub in Paramount, California.

According to World Energy, the facility is currently the world's first commercial-scale SAF production facility and its total fuel capacity will be expanded to 340 million gallons/year under the deal with Air Products. The expansion will begin commercial operations in 2025. The California site can currently produce 60 million gallons/year. It began operations in 2016.

Some 48 airports regularly distribute SAF globally, according to S&P Global Commodity Insights Director of Global Biofuels Corey Lavinsky, who said supplies would increase from "negligible" in 2022 to "noticeable" in 2024.

Still, SAF will only have 5% of the global airline fuel market by 2040, Lavinsky told the S&P Global Agribusiness Value Chain Forum 10 June, with a large part of this due to price and feedstock availability. If incentives increase, then S&P Global's forecast will increase, he added.

Shortage of supply

Some buyers of SAF are also worried about supply levels. In January, trade body Airlines for Europe warned of higher costs for consumers because SAF was in such short supply as its members sought to meet European Commission (EC) requirements.

Those requirements seek to boost supply too though. The RefuelEU Aviation initiative, part of the EC's Fit for 55 program of proposals, aims to boost the supply of and demand for aviation biofuels by 63% by 2050.

Biofuels have always had a supply issue, said Christoph Berg, managing director, F.O. Licht, a unit of S&P Global Commodity Insights. There is plenty of feedstock, he told the S&P Global Agribusiness Value Chain Forum 10 June, but the search for appropriate conversion technology is underway and is intensifying.

The ICCT set out scenarios 9 June that it believes will see those supply issues solved, as well as aligning the aviation sector's emissions with the Paris Agreement. SAFs are likely to account for the largest share of the sector's CO2 reductions, with that potential varying between 59% and 64% across scenarios, ICCT said.

ICCT's most ambitious scenario would see demand for SAF increase to 4 exajoules or nearly 2.73 billion gallons from almost zero currently.

Biden's backing

US President Joe Biden is trying to offer incentives to boost production. Biden's stalled Build Back Better Act contains a $1.25/gallon credit for each gallon of SAF sold if the cleaner fuel has a demonstrated lifecycle GHG reduction of 50% compared with conventional jet fuel. The tax credit would then increase by 1 cent for each percentage point above the 50% emissions reduction target.

The Biden administration foresees a 20% drop in US aviation emissions by 2030 compared with a business-as-usual scenario as a result of the tax credit as well as American SAF production reaching 3 billion gallons/year by 2030. In September 2021, the White House said US SAF production capacity was approximately 4.5 million gallons/year.

Aviation (including all non-military flights within and departing from the United States) represents 11% of the US' transportation-related emissions, according to the White House.

CO2 emissions from US commercial aircraft decreased to 91.3 million metric tons (mt) in 2020 as a result of the COVID-19 pandemic, while other aircrafts' CO2 emissions fell to 30.7 million mt, the latest US Environmental Protection Agency (EPA) data show. Prior to the pandemic, EPA data show commercial aircraft CO2 emissions topped 134 million mt in 2019.

In April, despite US Senator Joe Manchin, Democrat-West Virginia, single-handedly blocking the Build Back Better Act in the Senate, Biden again went to bat for SAF. In a 12 April speech in Menlo, Iowa, he told an audience at a POET bioethanol plant: "I've set a goal of zero-carbon for aviation sector, for example, by 2050. It's going to require billions of gallons of sustainable aviation fuel. And you simply can't get to net zero by 2050 without biofuels."

Biden continued: "To bring that future within reach, I proposed a sustainable aviation fuel tax [credit] that we brought together—the governments, the agencies, aircraft manufacturers, airlines, fuel producers, airports—to advance cleaner and more sustainable fuels for American aviation. That's how we're going to get there. And we can."

Posted 13 June 2022 by Keiron Greenhalgh, Senior Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.