Sustainable aviation fuel market eyes biogas as low-carbon feedstock

During a recent panel discussion at the RNG & SAF Capital Markets Summit, SAF industry experts said that renewable natural gas is poised to serve as a reliable feedstock for low-carbon aviation fuel in the coming decades, noting expected forward supply growth could help industry meet production targets.

The panelists pointed to RNG's potential as a sustainable feedstock to complement existing SAF production. "We're quite bullish on RNG, [we are building] a 50 million gallon RNG to SAF plant," Andy Billig, Senior Advisor at SKYNRG said. "We think that as the supply of other feedstocks like Hydroprocessed Esters and Fatty Acids reaches its limits, RNG could fill the gap. "If HEFA supply maxes out in the 2030s, there has to be something else."

The integration of RNG into SAF production processes faces some roadblocks ahead. "I think it's going to be a challenge. If you look at the July numbers and annualize them domestically in the US, we're at a run rate of about 400 million gallons." Christopher Efird, CEO at NXTClean Fuels, said. "That's a big step from where we were just two years ago, just 18 months ago," he added.

Another hurdle facing the RNG to SAF integration is the co-location of SAF and RNG projects, which requires a robust supply chain. "Co-locating with a SAF production facility can help minimize risk," Billig said, but acknowledged the challenges associated with scaling these operations. "The obstacle for us is scale. So you can either do a very small SAF plant and co-locate, or if you're going to do 50 million gallons of SAF, there's really probably not one RNG plant that's going to be able to supply that," Billig said.

Technology, cost impede growth

Technological hurdles remain, however, and are compounded by high capital costs to start up new RNG projects.

"As soon as we have one plant built, we'll have more capital follow," said Alyssa Norris, director of sustainability at Aether Fuels. "One challenge now is to mitigate risk. That is a key piece to getting projects financed."

She suggested that robust carbon accounting frameworks, alongside the maturation of the book-and-claim model, will lend support, and resultant liquidity, to the RNG procurement space.

Even so, the market is set to remain dependent on long-term offtake deals to support investment, Norris said.

Cost visibility on both the procurement and sales side of the equation leads to a tightrope walk for SAF producers, who have to ensure cashflow in a high-capital expenditure environment.

"Fundamentally, to get these SAF projects off the ground, we need long-term offtakes with airlines. On the other side, we need long-term RNG procurement [agreements] with producers."

The US Department of Energy has set a target of producing 3 billion gallons of SAF annually by 2030, a goal echoed by the aviation sector's commitment to achieving net-zero emissions by 2050. "The aviation industry as a whole has made a commitment to be net zero by 2050," Efird said. "I think all of those goals are going to be challenging to meet, but I think progress has been made," he added.

However, achieving these targets will not be without challenges. Current production levels are significantly lower, with the US running at an annualized rate of approximately 400 million gallons, according to industry assessments.

Billig emphasized the need for a multifaceted approach to reach these goals. "Progress is being made, but I think those are very optimistic goals," he stated, acknowledging the hurdles that lie ahead. The panelists expressed concerns that the "low-hanging fruit" in SAF production has already been harvested, with many of the easier plant conversions completed. Efird echoed this sentiment, "The next tier down of SAF producers are struggling," he said, noting that the industry is likely to plateau as greenfield developers seek project financing.

Other industry experts predict that the 3 billion gallons target for US SAF production will be hard to reach. "We feel that there's going to be a shortfall [of 3 billion gallons yearly by 2030 goal] of about 1 billion gallons, maybe something like 2.3 billion if we are lucky enough," Aamir Shams, Senior Associate at RMI said.

The conversation also touched on the importance of long-term offtake agreements between SAF producers and RNG suppliers, which are essential for securing financing and ensuring a stable supply.

Panelists raised concerns about the current regulatory landscape and the need for clear policies to facilitate SAF and RNG development. "The federal government is proving to be an unreliable partner," Efird said. The importance of state-level incentives and support for SAF initiatives is an area of concern. "States need to fast-track permitting and create demand-side anchors," he added, pointing to successful examples in regions like Illinois and Colorado.

Platts, a part of S&P Global Commodity Insights, assessed the RNG premium (Excl. California) at $20.26/MMBtu on July 21, unchanged on the day. Meanwhile, the CA RNG premium climbed to $26.38/MMBtu, up 4 cents on the day.

Platts assessed neat SAF at $7.05/gal in California on Jul 21, an increase of 17.10 cents or 2.48% from July 14. Neat SAF in Illinois was assed at $8.29/gal, a decrease of 19.41 cents or 2.29% during the same period. Aviation turbine fuel blended with 30% SAF was assessed at $5.36/gal in California and $5.47/gal in Illinois.