Viewpoint: Global SAF trade to intensify in 2024

Market: Biofuels
21/12/23

The availability of sustainable aviation fuel (SAF) will be tight for buyers in northwest Europe in the first half of 2024, but trade on international routes is likely to pick up as capacity grows later in the year.

The International Air Transport Association (Iata) forecasts global SAF output will reach around 1.5mn t next year. Although that represents just 0.53pc of forecast jet fuel demand, it is a threefold increase on 2023.

Some biofuels producers could choose to maximise SAF output — in the form of hydrotreated esters and fatty acids synthetic paraffinic kerosine (HEFA-SPK) — over renewable diesel for at least part of next year, in light of a more challenging demand outlook for road fuels in the first half.

Theoretically, if all announced projects are completed on time and run at full capacity, global output could far surpass Iata's estimate and reach around 8mn t. But this is unlikely, given several projects have been hit with delays.

SAF of Chinese origin began to make its way to Europe in 2023, and those flows could grow as HEFA-SPK production there increases. Local bio-refiner EcoCeres produced over 50,000t of SAF in 2023, and plans to scale up output next year. Total Chinese output capacity could grow to nearly 1.4mn t in 2024.

Additional HEFA-SPK volumes from east of Suez from Finnish biofuels producer Neste's 2.6mn t/yr Singapore refinery will also be available to the world market, after unplanned repair works delayed the ramp-up of production at the plant this year.

In the US, capacity could surpass 2.5mn t in 2024, up from around 200,000t this year, with Lanzajet's first 30,000 t/yr alcohol-to-jet (AtJ) plant set to start production. Only small SAF volumes have made their way from North America to Europe so far, with the latter far more restrictive around the use of crop feedstocks for SAF production than the US.

Legislation taking shape

The increase in capacity will help obligated parties meet SAF mandates in place in France, Sweden and Norway. The French SAF target will increase by half a percentage point to 1.5pc in 2024, and the Swedish greenhouse gas (GHG) emissions reduction obligation for aviation will grow to 3.5pc, from 2.6pc this year, while the Norwegian blending mandate will remain unchanged at 0.5pc.

The market is also gearing up for the start of an EU-wide SAF mandate due to come into effect in 2025, after a final text was published in October. The legislation sets out annual SAF mandate shares starting at 2pc of an operator's aircraft fuel in 2025, rising to 6pc in 2030, 20pc in 2035, 34pc in 2040, 42pc in 2045 and 70pc in 2050.

Incentives drive short-term demand

While the EU-wide target is yet to come into effect, existing incentives in the UK and the Netherlands have seen liquidity concentrate in these two markets, beyond countries with mandates already in place.

Companies supplying SAF into the Dutch market can generate renewable fuel units (HBEs), or tickets. These are tradeable certificates that can help obligated parties meet the Dutch mandate for the use of renewable energy in transport. Deliveries of renewable energy in the aviation sector led to a crediting of 1.30mn HBEs in January-September 2023, or 22pc of overall HBEs registered for the period, according the Netherlands Emissions Authority (NEa)'s latest provisional report.

Similarly, suppliers of SAF to the UK market can generate Renewable Transport Fuels Certificates (RTFCs), which are created and awarded in equivalence to the volume of renewable fuel blended. Provisional 2023 data from the UK government's Department for Transport (DfT) show RTFCs were issued for a total of 40mn litres of SAF-equivalent in January-November.

Airports are also implementing their own initiatives. London's Heathrow aims to increase the share of SAF used at the airport to 2.5pc next year, up from 1.5pc in 2023, as part of an incentive scheme that helps airlines cover the extra costs. Heathrow estimates this could equate to up to 155,000t of SAF.

By Giulia Squadrin and Charlotte Walker

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