0:00

This is Dana Perkins and you're listening

0:02

to Switched on the B andF podcast.

0:04

Sustainable aviation fuel, or SAFF

0:07

for short, is the most immediate solution

0:09

to decarbonize aviation, and since

0:11

staff feedstocks include either organic

0:13

material like biomass or waste products

0:16

like used cooking oil, it has a lower carbon

0:18

footprint when compared to conventional jet

0:20

fuel. With off take agreements for SAFF

0:22

surging in the past two years, the industry

0:25

has been showing promise, but of course hurdles

0:27

remain. In this case, it's due to bottlenecks

0:29

and supply or competition for feedstocks

0:32

with renewable diesel, and a lack of

0:34

technology diversification. On today's

0:36

show, we highlight some of the findings from B

0:38

and EF's recently published twenty twenty

0:40

four Sustainable Aviation Fuel Outlook.

0:43

To talk us through the details are two of B

0:45

and EF's renewable fuels analysts, Daisy

0:47

Robinson and Rose Oates. We get into

0:49

the longer term outlook for sustainable aviation

0:52

fuel, as well as the policies and strategies

0:54

in different parts of the world meant to encourage

0:57

production and adoption. BNF subscribers

0:59

can find this report and related

1:01

research on staff at benif dot com

1:04

or at BNF on the Bloomberg terminal. Make

1:06

sure to subscribe to switched On on Apple

1:08

Podcasts, Spotify, or wherever you get

1:10

your podcasts, and consider giving us a review

1:12

to make us more discoverable by others. But

1:15

right now, let's speak with Daisy and Rose

1:17

about sustainable aviation fuel.

1:28

Rose, thank you for joining us on today's show.

1:31

It's a pleasure to be here.

1:32

And our second flower name Daisy.

1:34

Good to have you on the show today.

1:35

Too, Thanks for having me.

1:37

All right, so here we go sustainable aviation fuels.

1:39

Now, this falls firmly into airlines

1:42

and airplanes generally fall into

1:44

this hard to abate space wherever AND's trying to still

1:47

figure out how we're going to decarbonize it.

1:49

And invariably you see these occasional

1:51

electric planes that can hold

1:54

one passenger that are being developed, and we'll

1:56

see how that technology actually continues

1:58

forward. But we're gonna talk today about sustainable

2:01

aviation fuel, which is the more near

2:03

term and more immediate fix or partial

2:06

fix for this space. Can you provide

2:08

some context around how important sustainable

2:10

aviation fuel is to decarbonizing

2:13

airplanes.

2:14

So when we look at airline decarbonization

2:17

strategies, which is something that we're tracking

2:19

quite closely at BINA, pretty much

2:21

every major airline that we're tracking has

2:23

some form of sustainable aviation

2:26

fuel strategy, whether that's kind of

2:28

an explicit target to have a

2:30

certain percentage of their jet fuel consumption

2:32

as SAFF by a certain day in the future,

2:35

or whether it's just kind of investing in the R

2:37

and D or collaborating with startups.

2:40

So pretty much every major airline has

2:42

something like that, and when we look at decarbonization

2:45

strategies overall, this is something kind

2:47

of we're tracking over time, and by

2:49

the latest count, over thirty percent

2:51

of those strategies are to do with

2:53

SAF in some shape or form. Like you

2:55

mentioned, there's a bunch of other options

2:58

like electrification or hydrogen craft.

3:00

They're looking into those as well, but these are either

3:03

like electrication, you know, kind of contained

3:05

to the more short haul journeys, or for

3:07

hydrogen it's much much more long term. We're

3:09

talking decades away. So SAF

3:11

is something that is probably one of

3:13

the very few near term solutions

3:16

that can be implemented and acted on today.

3:19

So that's why it's so important for airlines.

3:22

What do these decarbonization targets look

3:24

like. Are they all roughly in the same percentage terms

3:26

or are they very widely airlined to airline.

3:29

Normally, for saf it's around ten

3:31

percent by twenty thirty, that's the

3:33

typical one that we see, but it does have

3:35

some variations. So the airlines in

3:37

Asia tend to be a little bit more conservative,

3:39

so that tends to be around five percent SAFF

3:41

by twenty thirty. The cargo airlines

3:44

like FEDEXDHL, they've gone a bit

3:46

higher, so they're targeting thirty

3:48

percent by twenty thirty. So there is some variation,

3:50

but generally speaking ten percent by twenty thirty

3:52

is the overarching theme.

3:54

I have on occasion looked at these maps where

3:56

they show you all the different airplanes that are in

3:58

the sky at any given moment, and for those who haven't

4:01

looked at that, it's absolutely wild to just see

4:03

how many different routes there are and how many planes

4:05

there are in the sky at any point

4:07

in time. When we look into

4:09

the future and actually even just look at the past few

4:11

years, what has been the increase in air

4:14

traffic and essentially is this expected

4:16

to grow over the next few years.

4:19

Yeah, great question. So obviously

4:21

COVID really hit aviation hard.

4:24

We're pretty much back to pre pandemic

4:26

levels now. Everybody's keen to

4:28

keep flying, keep traveling, and

4:31

BEENA actually expect demand

4:33

for air travel and for jet fueld to double

4:35

by twenty fifty, which again is kind

4:37

of why SAF is so important, because without

4:40

solutions like SAF, that's all just

4:42

going to be fossil jet fuel.

4:44

So two things are happening at the same time. One,

4:47

airlines are increasingly

4:49

looking at adding more bile fuels

4:51

to the jet fuel that they have, and at the same time,

4:54

more airplanes are going to be joining the sky if

4:56

these forecasts hold true. So let's talk about

4:58

the demand side, sort of demand scenarios

5:01

have we looked at for sustainable aviation fuel

5:03

and you know, really, does the demand currently

5:05

outstriped supply or at what point do we think

5:07

that that will becoming imbalance.

5:10

Yeah, that's a great question. So at the minute,

5:12

we've certainly seen that in a certain regions,

5:14

such as in the US and in Europe,

5:16

there's a really high demand and a growing demand,

5:18

and that's kind of due to certain policies that are

5:20

being put in place by the governments. So

5:23

the EU is really big on saff

5:25

mandates. So they are about to

5:27

install the Fuel Aviation, which

5:29

is basically a blending mandate that will

5:32

be legally binding in all the countries in the EU,

5:34

and they're going to have to meet certain blending

5:37

rates from twenty twenty five. It starts at two percent

5:39

and then it gradually increases every five years all

5:41

the way to seventy percent of jet field demand

5:43

in twenty fifty. So it's definitely gonna be a big challenge

5:46

kind of meeting that with supply in the YOUU because

5:48

from our tracking of projects of saff production in

5:50

twenty twenty three, there was less than one billion gallons

5:53

of saff production and that it just pales

5:55

in comparison to the kind of saff demand in the EU,

5:57

So that is probably going to be short

6:00

for the next few years, all the way to twenty thirty

6:02

and then whereas in the US they have the SAFT

6:04

Grand Challenge and which starts with three billion

6:06

gallons of saff by twenty thirty being blended

6:09

in the region and then it goes all the way up to basically

6:11

equivalent to one hundred percent of jet field demand.

6:13

So yeah, there's definitely those two regions in particular.

6:16

I think there's going to be a huge demand

6:18

all the way from now to twenty fifty

6:20

and then and that kind of other regions

6:23

such as APAC. There's kind of a

6:25

few countries are starting to bring in policies,

6:27

but it's a lot more fragmented. There's not one common

6:29

aviation market, so it'll be harder for

6:31

this supplied growl there because it's much

6:33

more challenging for first movers because it will be much

6:35

more expensive and the demand might not necessarily

6:38

scale up as quickly.

6:39

Yeah, I would also say that one of the big

6:41

challenges with SAFA is it's a lot more expensive

6:43

than jet fuel, and so it kind of does

6:46

rely on policy to create that market.

6:48

So we've got these two scenarios that we've

6:50

run in our Sustainable Aviation Fuel outlook

6:52

for demand. The first one is kind of our

6:55

base case, which just takes policy that's

6:57

already existing and so that pretty much

6:59

is the EU mandates that Rose

7:02

explained and also the US policy,

7:04

and so just relying on that, and then an

7:06

element of these voluntary staff

7:08

targets that airlines are setting

7:10

themselves, we get to about three and

7:12

a half percent of jetfield demand

7:15

by twenty thirty. And then our second scenario

7:17

is what we call the boosted policy scenario,

7:20

where there's a lot of other policies

7:22

around the world being considered that just haven't

7:24

been implemented yet. So there's a few in

7:26

the Apat region and elsewhere.

7:29

So if we add in all of these that are under consideration,

7:31

that number goes to just under eight percent

7:34

of global jetfield demand by twenty thirty.

7:36

And it's important to also note

7:38

that these are just policies that are currently being

7:41

either implemented or under

7:43

consideration, so there's a lot of scope

7:45

there to actually increase if more

7:47

regions and countries come up with new ones

7:49

that haven't yet been announced.

7:51

Would you say that the EU has the most aggressive

7:53

targets at this point time, given that it's seventy

7:56

percent by twenty fifty.

7:57

Yes.

7:58

How has the Inflation Redaction Act played

8:00

into this in the US?

8:02

Yeah, So the Inflation Reduction Act has

8:04

been quite important for saf because, first

8:07

of all, the US market is the biggest

8:09

market in the world for biofuels, but historically

8:12

it's always focused on road fuels, and so

8:14

the Inflation Reduction Act is quite important

8:16

because it's trying to address

8:18

that imbalance between incentivizing

8:21

road fuels and incentivizing biofuels

8:23

for aviation. So in the past, the

8:25

way the US market is built

8:27

for biofuels is it kind of stacks these credits

8:29

on top of each other, and historically aviation

8:32

was missing out because it got less credits than

8:34

road fuels, so producers are always incentivized

8:37

to produce road biofuels instead of

8:39

aviation. So now the change is adding

8:41

an additional tax credit for sustainable

8:43

aviation fuel, which aims to level

8:46

that playing field and make it more attractive

8:48

for producers to be producing aviation

8:50

fuels instead.

8:51

I'm glad you brought up road fuels because I have a very

8:53

basic question here, which has to do with the fact

8:55

that when we talk about cars that can take

8:57

biofuels, the engine actually has to be specifically

8:59

just in order to be able to handle that. Can

9:02

sustainable aviation fuels be

9:04

used on the exact same aircraft we have

9:06

in the sky right now, or do these engines

9:08

need to be made differently?

9:10

Yeah, for now. That's one of the big

9:13

pluses of sustainable aviation fuel

9:15

is that it's a drop in fuel and so when you compare

9:17

it to something like hydrogen, which would require

9:20

a complete overhaul of the current infrastructure,

9:22

whether that's engines, logistics,

9:24

any of that stuff, Refueling needs to be

9:26

changed, which is really time consuming and really expensive.

9:29

So the big benefit of SAF is that you don't

9:31

need to do any of that because it's a drop in fuel. So

9:34

in theory it can be used

9:36

as a like for light replacement for jet fuel. You

9:38

know, there's some aromatics blending that needs to take

9:40

place, and at the moment there's regulations

9:42

in place that you can only blend it up to fifty percent,

9:45

but the industry is working pretty hard on addressing

9:47

that and in time it's expected

9:49

that that will go to one hundred percent. So when

9:52

it comes to road biofuels, some of the kind of

9:54

more traditional biofuels like ethanol biodiesel,

9:56

they're limited to very low level blending

9:59

and if you want it to go higher than that, you would

10:01

have to have a specialized engine, which is called

10:03

a flex fuel vehicle. But they were also a drop in biofuels

10:05

on road as well, aka renewable diesel,

10:08

which is the main competitor with SAF.

10:10

When it comes to supply because producers

10:12

can either make this renewable diesel, which is

10:14

a drop in fuel for diesel, or

10:16

saf.

10:17

Now, we did a show recently on another

10:20

hard to evate sector, So maritime

10:22

and the International Maritime Organization

10:24

of the IMO has been a driving force in trying

10:26

to set emission standards on their side.

10:29

We've talked about how companies have their own

10:31

emission standards, and then there's policy

10:33

intervention different parts of the world. Is there

10:35

a third party, non governmental

10:37

organization across the aviation space

10:39

that's doing a similar thing.

10:41

Yes, so there is the international body

10:43

IATA, which is the International Air Transport Association,

10:46

and yeah, it's part of the roadmap. SAFF will contribute

10:48

sixty five percent of the emission reduction

10:51

as part of the goal for net zero by twenty fifty.

10:53

So we've talked a bit about the airlines and about

10:56

the targets that are out there, but let's

10:58

talk about the infrastructure. And I'm thinking about

11:00

airports and where we're actually refueling

11:02

these planes. Now, logic would lead

11:04

me to believe that the largest number of airports

11:06

would be in Europe given these aggressive targets,

11:08

But really where and how many airports

11:11

are reactually seeing have the capacity

11:13

to deliver the fuels that are required

11:15

in Is this a Battlemack.

11:16

Yeah. At the moment, staff is highly

11:19

concentrated in the world. I would

11:21

say the highest concentration is in

11:23

California actually, because that is really

11:25

the epicenter of renewable fuels

11:27

globally thanks to their low carbon fuel

11:30

standard policy. So really

11:32

San Francisco and LA are

11:34

the big kind of centers for saf refueling.

11:37

And so when you look at the availability at airports

11:39

and off take agreements actually, because

11:41

that's one thing we've been tracking is with these

11:43

off take agreements, quite often they will

11:46

disclose a location for where that SAFF

11:48

is going to actually be exchanged, and typically

11:50

it tends to be there. But over time this is

11:53

changing and it's becoming a little bit less

11:55

concentrated. So, like you say, European airports

11:58

are getting involved because the mandates have actually

12:00

been implemented yet, but that market is definitely

12:03

catching up with California. So we

12:05

are seeing some kind of hubs emerging,

12:08

like the UK for example, and France

12:10

because France also has its

12:12

own blending mandate as well.

12:14

I'd just like to add on to that, there is one your

12:16

port particular in Singapore, the Government of said a really

12:18

interesting blending mandate there which includes

12:21

one percent of all flights that leave Singapore

12:23

from twenty twenty six, and basically

12:25

the passengers will pay a lavay that's going to cover

12:27

the cost of the staff. And I think it'll be easy

12:29

to implement, as the government responsible for kind of

12:31

sourcing the saff there and then the leavy

12:33

will pay for it.

12:34

That's kind of an interesting mechanism

12:36

actually, because one of the big uncertainties

12:39

about staff is the cost, and particularly where

12:41

there isn't policy in place, that's kind

12:43

of a big challenge for airlines not knowing

12:45

how big this liability could be. So

12:48

the Singapore government has gone about it in a kind of interesting

12:50

way where they come up with a price

12:53

expectation going forward and they

12:55

fix the levee based on that expectation,

12:58

and that levee gets passed through to passenger.

13:00

Yeah, it would only add an additional cost of twelve

13:02

US dollars from single war to London, and then the business

13:04

class passengers will pea slightly more.

13:06

So then they fix that levee and

13:08

then the income from that levee will enable

13:11

them to purchase the quantities of SAP,

13:13

so they've fixed the price and varying

13:15

the volume basically, so their target

13:18

for how much SAF is being blended

13:21

is slightly variable. So it starts at one

13:23

percent in twenty twenty six, and then they aim

13:25

to increase that to between three and five percent,

13:27

depending on how much they can actually procure

13:30

using the income from that levee.

13:31

And that's across all of the airlines that are going

13:33

in and out of Singapore, so it's not just associated

13:36

with a specific airline that has a

13:38

more stringent target exactly.

13:40

So that's the beauty of mandates

13:42

because it creates this level playing field.

13:44

This is a big challenge for an international

13:47

industry like aviation is competition

13:49

because of the high prices. Airlines are kind of hesitant

13:52

to be the first mover because that will

13:54

directly impact their competitiveness.

13:56

And so mandates create this level

13:58

playing field across every everyone. Everyone has

14:00

to blend the same amount, everybody has to pay the same

14:03

for this premium product, and so that's

14:05

why it's seen as a necessary

14:07

step in order to boost demand.

14:09

I mean, if you go back in our back catalog, just a couple

14:12

episodes ago, we had the chief sustainability

14:14

officer at United Airlines, which is the

14:16

number one user of staff in

14:18

the world at the moment, and she talked

14:20

a bit about this issue of the higher

14:23

premium for it and the

14:25

passing it on to the customers and whether or not the customers

14:28

are going to be willing to pay it, and what those incentives really

14:30

look like. Can we talk a little bit about that

14:32

price differential? How big is it if

14:34

we didn't actually amortize it across

14:36

all of the different airlines like Singapore is doing.

14:39

What sort of premium is an individual airline

14:41

paying?

14:42

So it really depends on the type of saff

14:44

because yeah, we haven't gone into too much detail

14:46

about the different pathways to produce staff, but

14:48

there's several different kind of routes you can go down.

14:51

But it starts around three times

14:53

multiplier versus conventional jet

14:55

fuel. That's kind of the starting point. So the

14:58

traditional staff that's on the market now, it's

15:00

the cheapest to market. They say it's around three

15:02

to five times more than conventional

15:04

jet fuel, and that multiplier goes all the

15:06

way up to nine times if you're looking at something

15:09

like e fuels or power to liquids, which

15:11

are much less developed at the moment.

15:13

So these kind of alternative technologies like power

15:15

liquids, they are looking at like five to nine

15:17

times the price, so they seem a bit unattainable

15:19

at the moment in terms of cost. However, some of

15:21

certain regions in the world that EU they're starting to turn

15:23

their backs to the more traditional staff

15:26

just to the nature of the feedstocks. They want to look more advanced

15:28

bile fuels and power liquids, which will, like the comm

15:30

at higher cost. So that is interesting to see how

15:32

that will play it.

15:33

Why is there a luck to some of these higher cost

15:36

bile.

15:36

Fuels, It's just because they want to

15:38

move away from so there's a lot of competition with agricultures.

15:40

So it's things like they don't want crops going in

15:43

the main growing season for food going to aviation.

15:45

And there's alternative technologies like it's

15:47

called gas to liquids where they can basically

15:50

convert waste feedstocks from agriculture

15:52

forestry into fuels. But it's

15:54

still quite a nascent technology that you in

15:56

particular are looking more towards those types of fuels,

15:58

so then they're not competing basically food crops.

16:01

Yeah, ultimately it comes down to feedstock,

16:03

which is possibly the biggest challenge

16:05

when it comes to scaling up SAF. So

16:08

the more traditional route, which pretty much

16:10

all of the SAF that's available today, is via

16:12

this route that is called heifer and that relies

16:15

on oil type feedstocks

16:17

like vegetable oils or use cooking oils. So

16:19

it's the cheapest to produce, but it

16:21

also sees pretty constrained

16:24

feedstock supply, and so that's potentially

16:26

limiting growth of the sector in the future.

16:29

And then so the reason that there's a lot of talk around

16:31

these other more expensive technologies

16:33

is that they have the ability to

16:35

convert a much more abundant supply of feedstocks

16:38

and waste feedstocks as well, so agricultural

16:40

residues, municipal solid waste even

16:42

And then when you get to ethiels, they are

16:44

quite different because they don't rely on biogenic

16:47

feedstock at all, and so they don't come

16:49

with the same potential land use issues

16:51

that biogenic feedstocks do. So

16:54

interestingly, the EU is quite

16:56

big on e fields or quite big on trying

16:58

to encourage this gale up of this market,

17:00

which currently is very very nascent,

17:02

doesn't really exist yet in any

17:05

commercial scale, so that euse actually

17:07

set a sub target for these feels, whereas

17:09

I don't know if you want to elaborate on those, yeah,

17:11

yeah.

17:12

Happy to. They kind of map blendy mandate I mentioned

17:14

before the refield EU aviation. They have

17:16

a sub blending target which starts in twenty thirty

17:18

with zero point two percent of get field demand being

17:20

perat liquids, and then it goes up to thirty

17:22

five percent in twenty fifty, which is

17:24

half of the bull mandate. But I think

17:26

that it will be challenging because currently the supply there's

17:29

two or three pilot plant level efuel

17:31

production facilities around the globe, so

17:33

it really needs to scale up massively. But it's seeing a lot

17:35

of investments. Some countries like Japan, UK

17:38

are putting money into it, so there is a transferred.

17:40

To scale up.

17:40

But currently it's difficult just because of the high cost

17:42

and it relies on green hydrogen which is expensive,

17:45

and it also relies on carbon so either

17:47

carbon dioxide that other comes from direct air capture

17:50

which also needs to be scaled up, or potentially from

17:52

a biogenic seal two source. So it's

17:54

sung like an eth mool plant or a paper and pulp mill

17:56

plant. So it does face a lot more challenges than the

17:58

traditional kind of hydro process technology,

18:00

which is already used extensively in the US

18:02

to day to make renewable diesels. E mean, it'll

18:05

be interesting to see how those technologies skill up.

18:07

It seems like there are a lot of different variables here

18:09

in terms of the feedstocks that could have

18:11

a dramatic impact on the future, depending

18:13

upon supply. So when you take

18:16

a moment to actually think about the

18:18

forecasts in the longer term, how

18:20

many different avenues did you need to go down, and

18:22

how do you go about even thinking about

18:24

creating a forecast? And how many I

18:26

guess, how do you narrow down the variables to the scenarios

18:29

that you're going to look at?

18:30

Yeah, no, I think when it comes to trying

18:32

to forecast demand, it is it's

18:34

very difficult at this stage because the industry

18:36

is so new and there is very little

18:39

policy to go by, and policy really will

18:41

be the driver of this until costs come

18:43

down, because it's very difficult to

18:45

rely on voluntary targets

18:47

alone when the costs are so much higher.

18:50

Our forecasts are predominantly based

18:52

on those policies that exist. But then

18:54

longer term, when demand really

18:56

starts to pick up, because between now and twenty

18:58

thirty, you know, it's sarting from practically

19:01

nothing. So even though it is growing very

19:03

rapidly, we still only get to around

19:06

five percent of total demand by twenty thirty.

19:08

But beyond twenty thirty, when the mandates start

19:10

to kick in and when that scale really starts

19:12

to get significant, that's when the feedstock

19:15

constraints really start to kick in.

19:17

And so yeah, there's a lot of uncertainty

19:19

about how this is going to play out. We've

19:21

looked at the potential supply of

19:23

these different feedstocks and how they're

19:25

going to interact with each other going

19:28

forward. We've estimated the supply of

19:30

global waste oils, greases,

19:32

and fats, and according to our two demand

19:34

scenarios, if you think about

19:37

the boosted policy scenario, demand

19:39

will actually outstrip that supply before the end

19:41

of the decade, which is pretty significant

19:43

because at the moment that's the feedstock that everybody's

19:46

relying on. And beyond that there's going to

19:48

be a serious need to scale up these alternative

19:50

technologies or explore different

19:52

feedstock avenues that can be converted

19:54

via the heifer pathway.

19:56

How concentrated is the market in terms of the

19:58

companies that are actually playing in it, because when you bring

20:00

up different cooking wastes and those things, it makes

20:03

me think of nest Ay and the actual

20:05

drive that they have to get household

20:07

cooking waste back to use as a feedstock.

20:10

That does feel like it would require some

20:12

major logistical support and scaling

20:14

around the world in order to meet demand. So we're

20:17

back here too, how do we get enough of this

20:19

fuel? But also how many companies are actually concentrating

20:21

on this and how are they going to be able to

20:23

scale it? So is it a really fragmented

20:26

market or are we talking about a few companies

20:28

that really are the future of this.

20:31

Yeah, it's a really interesting one in

20:33

terms of the market structure because

20:35

you've got in terms of who's actually

20:37

making fuel today, it's highly concentrated,

20:40

and it tends to be big oil refiners

20:42

because they've got the scale and the expertise

20:45

and the infrastructure. So you've got neste

20:47

to tell any Diamond green

20:50

diesel in the US P sixty six

20:52

all oil names, and now

20:54

we're starting to see these producers

20:57

they've got the infrastructure to actually convert

20:59

and use to fuel, but they're integrating

21:02

into the feedstock industry as well. So

21:04

you mentioned NESTE. They're a really good example of

21:06

a company that's been really proactive in

21:08

making deals and acquisitions

21:11

in order to get priority access to these

21:13

low carbon feedstocks. So they acquired

21:15

two waste collection companies in

21:17

the US, for example, so that they have priority

21:20

access to use cooking oil, which is the kind of most

21:22

high in demand feedstock for SAFF. And

21:24

I think going forward we might see

21:27

different geographies going in different ways. So for

21:29

example, China, there's a lot of potential

21:31

there for used cooking oil, and we're starting

21:33

to see more production facilities

21:35

being planned where the feedstock

21:38

is. So for example, just this month, to Tell

21:40

Energies and Sinopec agreed

21:42

or announced an agreement to build a

21:44

SAFF production facility in China at one of Signipec's

21:47

refineries. And I think we might see more of

21:49

this to come, trying to not

21:51

just think about where the facilities

21:54

are, but where the feedstock is, to try and locate

21:56

yourself near ample feedstock supply.

21:59

Now you'd mentioned a little bit earlier off

22:01

take agreements, and I know you're used to spending

22:03

your time talking to sophisticated commodities

22:05

investors. But for the benefit of those who might

22:07

be listening today who aren't falling into

22:09

that category, can you explain what an off take agreement

22:12

is and then how important it is to the adoption

22:14

of SAFF.

22:15

Yeah, so off take agreements are basically essential

22:18

for the scale up of SAFF because SAFF

22:20

comes set of premium to fossil basedjet

22:22

fuel as well as the industry requiring scale up

22:24

is important for general investment in the industry. So the

22:26

kind of nature of the agreements we see are generally

22:28

between producers and airlines and they tend to

22:30

be very long term, over several years,

22:32

five to ten years, and sometimes they come with an

22:35

investment in the company it's a small startup or

22:37

otherwise it is just they'll pay for the

22:39

fuel over that entire time period. And I think

22:41

it's important for the airlines to just lock

22:43

in a future supply, especially for when

22:45

all these mandates will come in the EU for

22:48

example, as well as just helping the industry

22:50

grow, because I'd say that in terms of the main players

22:52

in industry of SAFF production, there's as Daisy

22:54

mentioned, the kind of large refiners who

22:57

have all the existing infrastructure they're able

22:59

to convert exist refineries to produce renewable

23:01

fields in a couple of years. You have the other side of the coin,

23:03

which is kind of startups. Then they just require

23:05

a lot of capital. Right now, like gasification

23:07

has high kpex as well as the paratial

23:10

liquids is still being developed. So I think it's really

23:12

important for those newer, smaller companies

23:14

to get a lot of investments from airlines

23:16

and other companies, So I of take agreements that are

23:18

going to play a large role in just the general scale

23:20

up of supply. One of the issues with

23:22

the sector is that, for example, there's some

23:25

large plants being planned in like Chile to

23:27

produce SAFF, but there's a lot of airlines concentrated

23:29

on other parts the world that wouldn't nessarily fly there. So that's why

23:31

a lot of these book and claim systems are being

23:33

promoted, because as well as the production

23:36

facilities need to be located near feedstocks, they also

23:38

need to be located on like popular flight

23:40

paths, or obviously they can be transported. But

23:42

a lot of companies are looking to book and claim systems where

23:44

they can kind of say that they've bought the SAFF, but it doesn't

23:46

necessarily have to go and there the exact

23:49

plane, but you get the credit and it still flies in

23:51

a plane.

23:51

Yeah, I think the industry is still

23:53

figuring it out, but yeah, it seems like

23:56

there's this book and claim system emerging

23:58

which essentially acts like an offset

24:01

where the fuel that you're purchasing

24:03

doesn't necessarily have to be loaded into

24:05

your plane at a specific airport,

24:07

but you can bank the credit and purchase

24:09

it. So I guess it's fungible in that

24:11

way.

24:12

It seems very similar to like a renewable power

24:14

purchase agreement in that you're producing

24:16

the renewable energy somewhere, but the actual

24:18

electrons that are showing up but your home or

24:20

your facility are not necessarily generated

24:23

in that way.

24:23

We've even seen like a couple of announcements of corporations

24:26

who are trying to like Microsoft AMS, and they're trying to

24:28

offset their Scope three emissions like business

24:30

travel and stuff. So they started purchasing staff,

24:33

but obviously they're not earlines, so they don't have any

24:35

infrastructure to use this app. So that's quite interesting

24:37

new avenue that we're kind of being explored.

24:39

But once again, it's really brand new, so I

24:41

don't know what direction will goal.

24:43

Yeah, And I think it's important to add that a

24:45

lot of these off take agreements, they don't tend to

24:47

be necessarily legally binding,

24:49

but they're still very important in establishing

24:52

this market because it's a statement of intention,

24:55

really, and airlines are doing all

24:57

they can to show their support in every

24:59

way they can to this market and helping

25:01

it to scale up basically. So I

25:03

think that's why these off take agreements are important.

25:06

So well, aviation is this global

25:08

industry because literally, these planes

25:10

are flying all over the world. The

25:12

feedstocks seem to be really this pinch

25:15

point in terms of staff adoption and

25:17

availability, and the natural

25:19

resources that are given country or region are

25:21

actually endowed with are quite local. Can

25:23

you talk about some of the issues there and maybe

25:26

opportunities that might be arising out

25:28

of different regional assets and

25:30

commodities that are the feedstocks that

25:32

are producing the fuel.

25:34

There's kind of a theme emerging

25:36

of, you know, the different technologies can

25:39

convert different types of feedstocks, So the different

25:41

technologies are probably going to end up emerging

25:43

in specific geographies where they have abundance

25:46

of those feedstocks. So an example is alcohol

25:48

to jet, which is a technology under

25:50

development which can convert ethanol.

25:52

So it's quite an interesting one because specifically

25:55

the US and Brazil are huge ethanol

25:57

markets which are blended into road fields. But over

25:59

time time, as we expect road

26:02

field demand to be eroded by electric vehicles,

26:04

there's this huge ethanol market which

26:06

is going to be displaced, and so there's

26:08

now a lot of talk around whether this ethanol

26:11

can be converted into SAF because SAFA

26:13

is an industry where demand is expected to grow

26:15

a lot, but feedstock constraints is a

26:17

huge problem. So trying to match

26:19

up these two problems of declining

26:22

demand on road versus a need

26:24

for an alternative source of

26:26

feedstock with SAF. So that's still

26:28

very much under discussion, but there's kind of an

26:30

expectation that markets like Brazil or

26:32

the US could be big hubs

26:35

potentially for this alcohol to jet technology.

26:38

But again it's very very new. The

26:40

first operational commercial scale

26:42

plant only opened earlier this year

26:44

in the US, so yeah, still very

26:46

early days.

26:47

Which in many respects presents an opportunity

26:50

because these are existing production facilities

26:52

that need to find customers for long term

26:54

growth for their business, and so what you're saying

26:57

is that they could switch to this new

26:59

customer universe. Would it stay local

27:01

in terms of the customers that they're trying to service,

27:03

So would it stay within North America or

27:05

South America depending upon where it's produced,

27:08

or is this something that's going to get shipped all over the world

27:10

before then being put on a plane and then flown

27:12

all over the world.

27:13

Yeah, I mean I think that's still TBD.

27:16

Really. So there's discussion in Brazil because

27:18

Brazil is a very feedstock

27:20

rich region and right now doesn't

27:23

really have any saff conversion capacity

27:25

to speak of, and so now there's this drive

27:28

to try and emerge as a big saf

27:30

region and capitalize on this feedstock

27:33

abundance that they have. So there is discussion

27:35

some of the big ethanol players are

27:37

looking into potentially building some of these

27:39

alcohol to jet facilities. But yeah,

27:42

so I guess watch this space.

27:43

So this is really a space of emerging technologies

27:46

that are going to be changing aviation,

27:49

certainly in the medium term and potentially

27:51

in the long term as well. So within these different

27:54

feedstocks that we're talking about and different

27:56

things that are being piloted and really a lot of innovation.

27:59

It's easy to get excited about innovation at least

28:01

from my standpoint, because you see all of the potential.

28:03

So what are some of the innovations in this space

28:05

that you are most excited about.

28:07

Well, for me, I'm particularly excited about by

28:10

metaphor was pertal liquid technology because

28:12

you have a bit of tagline that's like you

28:14

can make the feel from thinnear in theory

28:16

because the carbon source is common outside

28:19

and so for me in terms of technology, it's really

28:21

fascinating. It's just that there will be a

28:23

lot of hurdles in terms of the price and improving

28:25

the technology before it can really scale up. But for me, that

28:27

could be a really good technology that won't be limited by feedstocks.

28:30

For me, I think that heifer will always

28:33

play a really important role because that's

28:35

the dominant technology. So I'm kind of excited

28:37

to see how that industry innovates

28:39

to come up with these novel feedstocks

28:42

to remove this potential bottleneck

28:44

for feedstock, So coming up with novel

28:47

crops, or there's genetically

28:49

modified crops that have a higher oil

28:52

content so you can get more out of

28:54

the crop, things like that. So I'm kind of enjoying seeing

28:56

these different developments on innovating

28:59

on the feedstocks of things.

29:01

Rose Daisy, thank you very much for coming to talk

29:03

about sustainable aviation fuels. I'm

29:05

really curious to see what happens with the different feedstocks.

29:08

It seems like there are going to be many

29:10

in many parts of the world.

29:12

Thanks a lot, Daniel, thank you for having us.

29:23

Today's episode of Switched On was produced

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29:27

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