EU Mandate to Spur Major SAF Outlays

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The European Commission’s ambitious proposals for decarbonizing aviation under its package to achieve full carbon neutrality by 2050 could transform the EU into the world’s premier region for producing and consuming sustainable aviation fuels (SAF) (PIW Jul.16'21). Its key components include a long-awaited blending mandate for SAF starting in 2025 that guarantees demand and may spur investment by oil companies, which face fines for noncompliance. Under the proposals, SAF must be available at all EU airports, where oil firms already own the bulk of fueling infrastructure. All airlines must buy it, including overseas carriers flying routes out of Europe. That should generate SAF demand of 25.5 million tons per year (550,500 barrels per day) by 2050, according to the commission’s analysis, requiring more than 100 SAF plants at a cost of €10.5 billion ($12.4 billion) and adding a potential €103.5 billion to airline fuel bills in the coming decades. European oil majors have a prominent role to play in supplying EU SAF requirements as they work toward net-zero emissions by midcentury. While the sector has been slow to commit to SAF projects to date, the proposed policies are likely to catalyze them (PIW May7'21). Outlays such as Royal Dutch Shell’s recent acquisition of a stake in a planned Netherlands facility alongside Dutch producer SkyNRG should proliferate. Shell also has plans for two SAF plants of its own in the Netherlands and Germany. Shell and BP already have partnerships with Finland’s Neste -- the world’s largest producer of renewable fuels -- to supply airlines across the region. Neste is poised to boost volumes to its airline customers and partners as expansion projects at its Rotterdam and Singapore plants lift its SAF output to 1.5 million tons (32,400 b/d) by late 2023. Co-processing by using biomass as feedstock in conventional refineries provides a lower cost pathway, which BP has started using at its Castellon refinery in Spain. TotalEnergies and Eni have converted refineries into renewable fuels plants in France and Italy -- another trend that could gain traction. Large-scale SAF production at Total’s zero-crude Grandpuis facility southeast of Paris is due to start in 2024. An EU mandate incentivizes all renewable fuels plants to shift production away from diesel to boost SAF yields. A SkyNRG analysis shows the blending mandate would require construction of around 300 SAF plants – three times the EC’s assessment (JFI Jul.16’21). That is up from just 15 SAF facilities currently planned in the EU and expected to be producing up to 2.3 million tons/yr (50,000 b/d) by 2027. Globally, there are more than 75 newbuild or conversion SAF projects planned by that date with the potential to make up to 14.8 million tons/yr, according to SkyNRG. That should be enough to meet EU SAF demand out to 2030, although SkyNRG sees the bloc still needing to import around 1.2 million tons/yr of SAF by the end of this decade. It sees EU SAF demand reaching 3.5 million tons/yr by 2030, made up of 2 million tons/yr from the EU blending mandate and a further 1.5 million tons/yr from national mandate “top ups” already in place or planned. The proposed EU SAF blending mandate starts at 2% in 2025 then rises every five years to hit 63% by 2050. Only advanced SAF made from waste will count. A submandate for the lowest-carbon synthetic SAF or e-fuel made from captured carbon dioxide and green electricity is also proposed, starting at 0.7% in 2030 and rising to 28% by 2050 (JFI Jun.18'21) Fuel suppliers are set to face fines of at least twice the difference between the cost of SAF and conventional jet fuel if they fail to supply enough SAF and also must pay to supply catch-up volumes during the following reporting year. Airlines will meanwhile face an "uplift obligation" -- equal to at least 90% of their flight requirements -- to avoid fuel tankering and carbon leakage. Airlines and fuel producers alike had called for SAF blending mandates that would guarantee demand, with special treatment for the most expensive but potentially negative carbon e-fuels. But many hoped the mandate would only cover intra-EU flights -- with any global action coordinated by the International Civil Aviation Organization.

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