In a recent webinar, Fastmarkets’ regional managing editor, Ryan Standard, and senior price reporter, Wendy Dulaney, introduced our latest sustainable aviation fuel (SAF) price assessments, including
- Los Angeles, California: SAF origin assessment, HEFA-pathway calculation
- Houston, US Gulf: SAF origin assessment, HEFA-pathway calculation
- Chicago: SAF delivered assessment, HEFA-pathway calculation
Fastmarket’s principal analyst and forecaster, Tore Alden, delved into the market outlooks and discussed the main factors that will shape SAF trade in the months ahead.
Here are our key learnings
The in-depth analysis of the Sustainable Aviation Fuel (SAF) market highlighted its fragility, particularly in the US, and the challenges associated with pricing and production.
Unlike in Europe, the US lacks mandates or renewable volume obligations for SAF, making it heavily reliant on voluntary commitments from airlines and corporate customers looking to offset carbon emissions. However, relying on voluntary action presents significant risks, particularly in times of economic downturn when environmental goals may be deprioritized.
Key challenges in the sustainable aviation fuel markets
Absence of mandates in the US: There is no requirement for US jet fuel producers to use SAF. As a result, SAF’s demand is driven almost entirely by corporate buyers aiming to reduce carbon footprints.
Economic volatility: A potential economic downturn could reduce demand for SAF, as companies may opt for cheaper carbon credits, undermining the market.
High production costs: The SAF market faces substantial production costs, especially with the need for advanced technologies and long-term financing. Producers often struggle with securing funds.
SAF pricing: Fastmarkets’ unique approach
Fastmarkets’ approach to SAF pricing reflects the complexities of this emerging market. Given the lack of a liquid spot market, our pricing currently focuses on long-term contracts, with prices meticulously reflecting feedstock input and production costs.
Feedstock cost is the largest contributor to SAF prices. Fastmarkets accounts for regional differences in feedstock blends, which include tallow, used cooking oil, corn oil and others, to offer more accurate pricing.
Alongside feedstock, Fastmarkets prices factor in external elements that may also have an impact on cost, like regulatory updates. Future policy changes, particularly around clean fuel production tax credits, could dramatically affect SAF trade. The credit’s value varies based on factors like carbon intensity (CI) scores and compliance with employment standards. These variations add further complexity into pricing, as producers will have different eligibility for credits, making it difficult to predict net production costs.
What lies ahead: Sustainable aviation fuel market outlook
Tore Alden’s session on the future of the SAF market highlighted critical industry developments and challenges, with a focus on North America and projections for 2030. While global expansion into regions such as Europe, Latin America and Asia is underway, Tore emphasized the North American market’s growing demand for SAF, driven primarily by the aviation industry’s own commitment to reducing carbon emissions.
We learned that current SAF supply remains insufficient for widespread usage, posing a significant challenge. While production is still in its infancy, the slow ramp-up in SAF capacity is due to various obstacles, including financing, feedstock availability, and challenges in scaling up production technologies.
Challenges to increasing SAF capacity
One of the main barriers to meeting the three-billion-gallon SAF target set by the SAF Grand Challenge is securing financing for production facilities. Financing SAF facilities, whether expansions or new builds, has been particularly difficult due to the sector’s unique characteristics. Some projects have been delayed, impacting timelines for SAF production and the ability to meet government mandates. Feedstock availability also remains a concern, with future projections showing a tight supply, which could impact the ability to scale up SAF production over the next decade.
Technological progress and limitations
The session highlighted the dominant role of HEFA (hydroprocessed esters and fatty acids) technology in meeting the three-billion-gallon SAF target. While other technologies, such as alcohol-to-jet, show promise, scaling these up to industrial levels remains a challenge. Some future technologies, like carbon capture for SAF production, are still in the early stages and not expected to significantly contribute to capacity in the near term.
Feedstock supply constraints
Feedstock availability, a key factor in SAF production, is becoming increasingly constrained. Projected demand for feedstock is expected to exceed supply by 2026-2027, potentially leading to shortages by 2034. The US is likely to rely on feedstock imports from countries like Brazil and Argentina to meet SAF demand, but this may still fall short. Additionally, evolving biofuel policies and potential limitations on vegetable oils could further strain supplies.
SAF market and margins outlook
SAF margins have declined recently, impacting both renewable diesel and SAF production. However, optimism remains, and the industry expects more stability once policy frameworks are clarified. SAF margins are expected to stabilize, but it may take time before they recover to earlier levels.
SAF is set to remain a key part of the aviation industry’s future, but the path to meeting 2030 targets is fraught with unique challenges. While the industry is making progress, key issues around financing, feedstock and technology scaling need to be addressed to achieve the necessary production capacity. Understanding these specific challenges is critical to ensuring the sustainable growth of the SAF market.
Fastmarkets aims to provide a realistic and comprehensive pricing structure that includes price assessments and SAF price and production forecasts to help both producers and buyers navigate this evolving landscape, with the goal of fostering long-term market growth.
