Sustainable aviation fuel (SAF) is a renewable fuel that can replace jet fuel – derived from crude oil. That makes it a key part of the fight to decarbonize our transportation networks, with the aviation sector a small but rapidly growing contributor of carbon emissions, but one that is difficult to abate as alternative propulsion methods are likely to be decades away.
As such, carbon reduction schemes and the fuel itself are at the forefront of efforts to lead on reducing the environmental impact of commercial flight. Governments across the world are investigating ways to decarbonize aviation, but it is the European Union that has taken the lead by setting an expectation that the bloc will be carbon neutral by 2050 and implementing an ambitious pathway of mandates to drive adoption.
As such, the expected growth in demand for SAF between now and 2050 is likely to bring profound consequences for the feedstock slate – the combination of waste-based or vegetable oil-based fats that are expected to be swept into the SAF production process.
What is the new Fastmarkets European SAF price, announced by Fastmarkets?
Fastmarkets recognises that such dramatic change needs effective pricing markers to enable those caught up in this transition to be able to understand the impact of price movements across regions, feedstocks and production margins. Reliable pricing information enables informed choices and paves the way for effective risk management solutions.
The value of a commodity can be established through analysis of physical price indications, or in other ways, such as calculating input and production costs to establish a finished product price. Fastmarkets is proposing to launch its first European SAF price based on a cost-of-production model, backed by the superior coverage of relevant feedstocks, which is the backbone of Fastmarkets agriculture and biofuel feedstock offerings.
This also aligns with our existing trio of US-based SAF prices, where we are already publishing a base cost assessment for ex-works Houston, US Gulf SAF, delivered Los Angeles SAF and delivered Chicago SAF.
What are the challenges in serving the developing SAF market with price assessments?
In a fast-evolving market such as SAF, there are challenges to capturing pricing data when a spot market – the physical market where excess supply can be traded – is relatively small and nascent, or where there are few players actively trading small volumes. Price reporting agencies such as Fastmarkets typically look for physical indications with bids, offers and confirmed trades providing evidence of where values are trading. By establishing a clear methodology, traders and other market participants can be confident that the price reflects an impartial view of those transactions
However, when a market is evolving rapidly, pricing information may be limited or only reflect buying patterns of a handful of counterparties, meaning that the price can be prone to sharp fluctuations. Under those circumstances, alternative ways of establishing a credible value can also be pursued, such as establishing a cost-of-production model, or an origin plus freight calculation.
What is the difference between a calculated price and an assessed price?
Fastmarkets has chosen to launch a calculated price to serve the European SAF market, allowing a transparent value to be established based on the assessed values of key feedstocks. We believe that this is the right solution for the current stage of the evolving European SAF market and allows Fastmarkets to establish an indicative price that is still grounded in real-world inputs and reflects a dynamic market. A calculated price ensures a regular, predictable, and logical assessment, but will not capture the dynamics of supply and demand that could result in a much higher or much lower price.
An assessed price is predicated on being able to capture enough pricing information from buyers, sellers, traders, and producers to power a transparent assessment under an agreed methodology. That price would consequently reflect dynamics of supply and demand and would likely price sometimes well below the cost of production, and sometimes well above it, according to market conditions. However, a reliable assessment would require access to a wide range of physical indications that can be transparently cross-checked and validated with trade sources. Until the market has reached that level of maturity, there is a risk that an assessed price could show dramatic swings.
Why is it the right time to launch a European SAF assessment?
From January 1, 2025, the European Union’s ReFuelEU Aviation policy entered into effect, requiring all European Union airports to ensure that a minimum of 2% of the overall supply of jet fuel supplied into departing aircraft should be SAF. The EU describes the increased use of SAF in the bloc’s aviation fuel supply as the “single most powerful tool to decrease aviation CO2 emissions.”
The mandate is expected to increase every five years through to 2050, rising to 6% in 2030, 20% by 2035, 34% in 2040, before a final push raises the target to 42% in 2045 and finally 70% by 2050 – a mandate that would amount to millions of tonnes of SAF production and consumption in less than three decades.
While the mandate promotes both conventional jet fuel and so-called efuels – synthetic fuels achieved through complex production processes that blend carbon with hydrogen – the vast majority of the early stages of the EU mandate will have to be met through fuels that are reliant upon used cooking oils, tallows and other animal fats potentially alongside other crop-based vegetable oil or corn oils, where permitted.
Who should be interested in the launch?
Primarily, the launch should be of interest to those within the aviation sector – particularly airlines, aircraft operators and the wider freight and logistics industry, along with agriculture and energy trading companies, conventional oil and gas majors, airports and airport infrastructure, biofuel producers, transport and energy analysts and other players active in the renewable energy transition.
Further out, everyone that is currently using feedstocks identified as ‘waste-based’ will also be increasingly affected by this transition, such as packaged food or pet food producers, conventional biofuel producers, renderers, aircraft and engine makers, regulatory and government agencies and anyone else using the major feedstocks that will be pulled into the SAF production pool.
Why should they be interested?
The growth of demand for SAF will have profound implications for the current trade flows around mineral jet fuel, SAF and the typical feedstocks as they are pulled into the increasing production of renewable fuels. It will disrupt feedstocks in existing biofuel production and have a significant impact on anyone using feedstocks for any other purpose.
In turn, these changes will have a knock-on effect for a range of staple business activities from long term procurement planning, and carbon reduction strategies through to compliance with regulations. The changes will also have a major impact on risk management strategies.
Why is Fastmarkets’ SAF assessment Northwest Europe-based?
Geolocating the assessment in Northwest Europe means that we are able to provide a pivotal production, supply and logistics hub in the Amsterdam-Rotterdam-Antwerp region, while also capturing demand side economics stemming from some of wider Europe’s busiest airports at Paris, Amsterdam, Frankfurt and London.
What is the methodology behind the Fastmarkets SAF spot price assessment?
Fastmarkets is proposing to use a calculated cost-of-production model to establish a price for European SAF basis the Rotterdam region. The assessment will combine Fastmarkets own assessments of key feedstocks such as used cooking oil and tallow with assumed costs for major inputs such as hydrogen.
Who can I reach out to if I have further questions?
If you have any questions relating to this proposal, please contact us via the pricing.ags@fastmarkets.com email address.
