Insight from Dubai: The Persian Gulf may be capable of producing SAF, but will its homegrown airlines use it?

The oil-rich Persian Gulf region is stepping up its involvement in the production of sustainable aviation fuel, thanks to its established energy infrastructure, but uptake of the clean product by its airlines would depend on regulations and costs to hit net-zero emissions targets.

The region is home to three airlines that capitalize on their hubs for long-haul flights to generate bumper profits and expand their global operations, given their small domestic markets.

Dubai-based Emirates, Abu Dhabi-based Etihad Airways and Doha-based Qatar Airways have a young fuel-efficient fleet that helps them fly longer with lower jet fuel consumption compared with global peers.

The region, particularly the UAE, is teaming up with international companies to start producing SAF in the near future.

A consortium led by the UAE's renewables firm Masdar, alongside TotalEnergies and Siemens Energy, plans to build a 40MW electrolyzer in the emirate of Abu Dhabi to produce methanol, which would be the feedstock for a 2,000 mt/year SAF production facility.

BP is partnering with Abu Dhabi National Oil Co., Masdar, Tadweer waste management and Etihad to conduct a joint feasibility study for SAF production in the UAE. ADNOC, with its refineries and energy infrastructure, can help in the production of SAF and Masdar can help construct electolyzers to produce the finished product.

All three Persian Gulf airlines are set to have higher emissions as their networks are constantly expanding, especially with an increasing number of code-share agreements with global airlines and their memberships of various aviation alliances.

Since most of these airlines rely on international flights, they would need to abide by the emissions regulations around the world, with different regions having variable standards. Take the EU — its Fitfor55 package, which aims to reduce the EU's greenhouse gas emissions by at least 55% by 2030, will require airlines to increase their uptake of SAF because 14.4% of the region's transport emissions come from the aviation sector.

According to Fitfor55, the minimum supply of SAF should reach 2% of total jet fuel uptake in 2025 and grow to 63% by 2050. These targets are more or less in line with the International Air Transport Association's forecast that SAF production would reach 7.9 billion liters or 2% of total jet fuel requirement in 2025, with output hitting 449 billion liters or 65% of total fuel requirements by 2050.

However, the Persian Gulf airlines could struggle to adhere to the EU regulations due to the size of the sector, its high share of contribution to the region's GDP and the impact that would have on their bottom lines, given that jet fuel costs are the biggest component of an airline's expenses.

With SAF currently costing at least twice the price of conventional jet fuel, it would be hard for these airlines to increase their flight network to regions such as the EU and keep a tab on costs as well.

Platts, part of S&P Global Commodity Insights, assessed Sustainable Aviation Fuel North Asia at $1,700.77/mt and Jet CIF NWE cargo at $777.28/mt June 16. This is why countries like the UAE are trying to have their say in the usage and regulations for SAF and how they are implemented globally.

Emirates and Etihad have tested SAF on certain flights, but their uptake of the fuel is miniscule compared to global peers such as US-based United, which has a partnership agreement with Emirates.

United claims it currently uses around 49% of the world's available SAF and is also leading a new $100 million fund designed to support startups and research focused on decarbonizing the airline industry via SAF.

Out of the three Persian Gulf airlines, only Etihad has announced plans to both reduce its 2019 emissions 50% by 2035 and hit net zero by 2050.

Qatar Airways, as part of the oneworld members alliance, plans to reach net zero by 2050. Emirates, the biggest of the three airlines, has no detailed target, but supports IATA’s collective industry commitment to reach net zero emissions by 2050.

Unlike Etihad and Emirates, Qatar Airways has yet to fly an aircraft using SAF, but it has signed a five-year offtake agreement with US-based renewable chemicals company Gevo for the supply of 25 million US gallons of SAF starting 2028.

Saudi Arabia, which is launching a new long-haul airline to compete with its neighbors, is also taking small steps to get involved in the SAF uptake. AviLease, a newly launched aircraft lessor backed by Saudi Arabia's sovereign wealth fund, has signed a memorandum of understanding with the Saudi Investment Recycling Co. to launch the production and distribution of SAF to the company's network.

If renewable energy production reaches an estimated 69 billion liters by 2028, the trajectory to 100 billion liters (80 million mt) by 2030 would be on track, according to the IATA. If just 30% of that produced amount produced was SAF, the industry could achieve 30 billion liters (24 million mt) of SAF production by 2030.

The use of SAF, which can lower CO2 emissions by up to 80%, may contribute to around 62% of the reduction in emissions needed by airlines to reach net zero in 2050, according to IATA.

In 2022, SAF production tripled to some 300 million liters (240,000 mt), according to the IATA. To date, over 450,000 commercial flights have used SAF and more than 50 airlines have experience in using the fuel.

The jury is still out on whether the Persian Gulf airlines would be able to continue to post high profits while at the same time fly to destinations forcing them to use SAF, reduce emissions or even achieve net zero by 2050.

This article was first published in the May 2023 edition of Commodity Insights Magazine. Click here to download the magazine.