Viewpoint: SAF Adoption Faces Challenges

Business and commercial aviation are increasingly using Sustainable Aviation Fuel (SAF) to meet sustainability mandates and goals.  SAF is a mix of 10% to 50% sustainably based jet fuel blended with kerosene-based jet fuel.  After blending, SAF is recertified as equivalent to Jet A or Jet A-1.

SAF sales were $116.45 billion in 2021 and are projected to reach $201.21 billion by 2030. Several factors have driven the surge, including regulatory mandates and targets such as the ReFuelEU Aviation Regulation. The ReFuelEU Aviation Regulation mandates a 2% SAF target for airport fuel suppliers in 2025, increasing to 70% by 2050.   However, there are substantial challenges for business and commercial aviation to achieve these goals.

SAF Challenges

It is currently unlikely that industry demand and regulatory mandates for SAF will be met.   Projections in early 2024 showed that even if all planned (~200) SAF production facilities came on-line, on-time, at stated production levels; in 2030, there would be a shortage of over 1 billion gallons of SAF.  In July 2024, Shell announced a temporary pause in construction at a biofuels facility in the Netherlands and others have followed.  The Trump administration’s policies will also likely drive additional SAF facility cancellations and delays.  So, there is little chance of meeting the 2030 objectives.  

SAF blendstock is 5 to 6 times more expensive than standard jet fuel.   Even a 10% blend will increase the cost of fuel by 40% to 50%.  A 30% blend increases it by 120% to 150%.  This significantly impacts flight economics.  For example, Lufthansa recently introduced a fee of up to 72 euros on flights departing from the 27 EU countries, the UK, Norway, and Switzerland to cover the cost of SAF and other new regulations.

SAF mandates also introduce management complexity. Regulatory frameworks on SAF vary by country and region, introducing a complex patchwork of mandates and regulations, including tracking fuel blend pathways.  So, flying to countries with SAF mandates will involve additional compliance efforts and potential penalties if one is unable to meet the mandates.  

Managing SAF

Though SAF and traditional jet fuel are interchangeable for flight operations, from a business management perspective there are significant differences. Business and commercial aviation need to be very careful with the goals set around SAF.   Renewable goals increase over time and if the current 2030 goals have little chance of being met, post 2030 goals are even less likely. The industry should be communicating that current objectives are unrealistic as there will not be enough supply to meet stated goals and mandates.

The cost of SAF and associated regulatory compliance will need to be included in pricing.   The huge disparity in cost means that flights of the same distance, fuel load, and flight hours could have significantly different costs due to SAF use.  Differences exist today, but they are much smaller than with SAF. As shown above, a 30% SAF blend more than doubles fuel costs.  

SAF requires additional transportation and storage elements to keep blend components separate prior to blending and to store SAF blends prior to recertification as Jet A or Jet A-1 equivalent. Increasing tankage at airports and managing logistics of more products and blends also presents significant challenges to those involved in getting jet fuel from the refinery to the wing.   Will increasing tankage even be possible at airports on islands or remote locations?

With shortages of SAF already projected in 2030, what happens when a major SAF refinery has an interruption in operations?   The cost of SAF will rise significantly and in some cases, it may not be available for a period of time. One could end up with both increased costs and regulatory penalties from a disruption.  In the worst case, one may have to cancel flights. Effectively dealing with these increasingly frequent supply chain disruptions is critical to maintaining a healthy business.

Technological Innovation and SAF

Technology can help mitigate and manage the challenges of SAF.   It will become increasingly important for business and commercial aviation to use Commodity Trading and Risk Management (CTRM) systems.  CTRM systems help mitigate all of the management challenges discussed above.  They determine fully loaded fuel costs and manage the scheduling and inventories of fuel.   When disruptions occur, they give one the information necessary to react quickly to secure needed fuel and determine likely impacts.   Finally, they provide information, backed by hard data, to stakeholders to understand the impacts of SAF fuel costs, disruptions, and regulatory targets.
 

Richard Murphy serves as Lead - Global Liquids Portfolio at ION Commodities.

Editor's Note: The views shared in Viewpoint columns are the opinions of the author.