COMMODITIES 2025: SAF on the rise, yet political landscape raises concerns

This is part of the COMMODITIES 2025 series where our reporters bring to your key themes that will drive commodities markets in 2025.

The rise of sustainable aviation fuel and the 45Z Clean Fuel Production Tax Credit indicate a pivotal moment for the aviation industry, offering both promising opportunities and challenges toward 2025, according to experts.

With Trump's return to the US presidency, many industry experts are skeptical about the future of biofuels in the US. The political landscape is shifting, and there is a prevailing belief that the outlook for SAF is not optimistic.

The main differences between the 40B and 45Z SAF tax credits are their eligibility periods, the criteria for emissions reductions, and the scope of application. The 40B tax credit, available for SAF produced between 2023 and 2024, applies to both domestic and imported fuels. It offers up to $1.75/gal based on reductions in lifecycle Greenhouse Gas Emissions compared to traditional jet fuel. On the other hand, the 45Z tax credit, which applies to SAF produced from 2025 to 2027, is limited to domestically produced fuels. It provides up to $1.75/gal based on Carbon Intensity reductions, with the credit amount increasing for each point the CI falls below 50 kgCO2/MMBtu.

One of the critical issues at play is the lack of clarity. The expiration of the 40B program raises serious questions about investment in the sector. If the program CFPC does not receive clear guidelines, potential investors may be deterred from committing resources to SAF production, fearing that the regulatory environment will remain unstable.

China UCO tax rebate cut

China's recent decision to eliminate the 13% export tax rebate on used cooking oil is set to have implications for the SAF market, particularly in the US, which heavily relies on UCO sourced from China. By removing this rebate, the Chinese government aims to curb fraudulent practices, such as the repackaging of virgin palm oil as waste, thus promoting the integrity of renewable feedstocks. This policy shift is expected to retain more UCO within China, enhancing domestic production capabilities for renewable diesel and SAF, while also stabilizing supply chains.

For the SAF market in the US, this development could lead to increased competition for UCO feedstocks as domestic producers may find themselves competing for limited available supplies. As UCO prices in China have already seen a dramatic drop, this could create a ripple effect, driving up procurement costs for US refiners who depend on imported UCO to meet their SAF production targets. The anticipated reduction in UCO exports from China may also compel US SAF producers to explore alternative feedstocks or invest in domestic waste oil collection initiatives to ensure a consistent supply.

US SAF imports rise as 2024 production falls short of expectations

US imports of SAF have experienced a remarkable increase from 2023 to 2024. Data from US Customs, released on Nov. 27, revealed that total imports for 2023 surpassed 170,000 barrels. In stark contrast, 2024 has witnessed a significant escalation, with over 1,178 million barrels imported by the end of November. Notably, October recorded the highest volume, with a total of 282,950 barrels imported in anticipation of the upcoming major holiday season.

The landscape of US SAF imports has undergone a significant transformation during this period. In 2023, all SAF imports to the US were exclusively sourced from Neste's refinery in Netherlands. However, by 2024, this dynamic shifted dramatically, with 86% of SAF imports now originating from Neste's newly operational refinery in Singapore, which began production in mid-2023. This transition underscores the strategic importance of the Singapore facility, which has doubled Neste's production capacity in the region.

However, SAF production in 2024 fell short of expectations, reaching only 1 million mt, half a million mt below the projected 1.5 million mt, according to IATA. While the 2024 output was double than of 2023, it accounted for just 0.3% of global jet fuel production. This shortfall is attributed to delays in US production plans. With the target for 2025 set at 2.1 million mt, the outlook remains uncertain.

"Governments are sending mixed signals to oil companies, which continue to receive subsidies for their exploration and production of fossil oil and gas," said Willie Walsh, IATA's director general, in the statement. "Investors in new generation fuel producers seem to be waiting for guarantees of easy money before going full throttle."

SAF Pricing

Platts, part of S&P Global Commodity Insights, introduced pricing for both neat and blended SAF in California and Illinois on Aug. 1.

Platts assessed the neat SAF price in California at $6.93/gal on Dec. 23, up from $6.89/gal on Dec. 20. The assessment for California aviation turbine fuel, which consists of 30% SAF and 70% kerosene jet fuel, increased from $5.14/gal on Dec. 20 to $5.17/gal on Dec. 23.

In Illinois, neat SAF was assessed at $8.37/gal in Dec. 23. Similarly, Illinois aviation turbine fuel price was assessed at $5.50/gal on Dec. 23.