SAF market faces falling near-term premiums, but EU mandates could create a shortfall

The premium of sustainable aviation fuel over conventional jet fuel has dwindled in recent months, and while airlines and consumers welcome this, it has damaged margins for producers and challenged investment prospects in the long-term.

As 2030 looms closer, a significant proportion of planned European capacity has yet to reach a final investment decision, posing the prospect of Europe having to import volumes to meet its own targets.

Platts, part of S&P Global Commodity Insights, assessed the premium of SAF produced via the hydroprocessed esters and fatty acids pathway on a CIF basis in Northwest Europe at an average premium of $1,091/mt in April, or 163%, over jet CIF cargoes. This has slumped from a 203% difference when the SAF assessment was launched in September 2023.

The price of SAF is a key concern for airlines. Airlines are the core of the SAF value chain, but they earn just a 3.6% net margin, which means profitability expectations for SAF investors need to be slow and steady, not fast and furious, Willie Walsh, director general of the International Air Transport Association, said in December.

"Clearly weaker margins" in the renewables segment of Finnish refiner Neste have kept the business loss-making, according to company figures, and comparable sales margins in its sustainable segment fell from $562/mt in Q1 2024 to $310/mt in Q1 2025, it said April 29.

Biogenic biofuels as a wider commodity class have faced trouble in Europe, amid competitive Asian imports. Biofuels producers across Europe have poured cold water on production plans, with Shell, Chevron and BP all announcing delays or scalebacks.

Looking ahead, concerns about capacity translate into the spread between SAF and jet fuel recovery, although it is unclear at what point this will encourage more investment in SAF and synthetic fuel, or eSAF.

Capacity is unlikely to keep pace as quotas ramp up significantly and as pressure on feedstocks mounts, Nathan Nguyen, a biofuels analyst at Commodity Insights, said. As a result, the EU could fall well behind the bloc's ReFuelEU Aviation mandates and by 2050, shortfalls could exceed 15 million mt, he said.

Analysts at Commodity Insights forecast the difference in price for European SAF and jet will rise from 222% in 2026 to 338% in 2050.

This comes as EU mandates bolster demand in the years ahead and jitters remain about the sustainability of imported feedstocks.

EU mandates are set to increase to 6% in 2030, at which point EU SAF consumption is expected to reach 85,820 b/d, or 8% of jet fuel demand. Consumption is expected to rise steadily to 70% in 2050. By this time, the bloc could be falling short of supplies, burning 507,740 b/d, or 48% of jet fuel demand.

Demand drives price rises

While output shortfalls may lie ahead, producers have faced the opposite problem in recent months, as a well-supplied market pressures price margins.

Global SAF output will be 64,000 b/d in 2025, up 136% on the year, and then rise 55% on the year to 99,000 b/d in 2026, according to analysts at Commodity Insights.

In Europe, 2025 output will be 21,000 b/d, an 83% rise on the year, and then grow 69% on the year in 2026 to 36,000 b/d, Commodity Insights data showed.

The market for biofuels is struggling amid oversupply but toughening mandates boost the longer-term outlook, management at Dutch storage firm Royal Vopak and Austrian refinery OMV said in summer 2024.

Encouragement to invest in SAF production has taken different forms in different jurisdictions, with incentives in the US and mandates in the EU and UK.

Mandates establish specific targets for SAF blending, Nabil Ahmed, an analyst at energy trade association Energy Industries Council, told Platts.

"With the UK and Europe implementing mandates, a clear and growing market for SAF is being created, providing producers with the certainty needed to invest in production capacity and allowing for greater predictability," Ahmed said.

Although mandates could initially lead to higher fuel costs for airlines -- potentially passed on to consumers -- mechanisms like the UK's buy-out price and the EU's dedicated SAF allowances within the Emission Trading System aim to mitigate this, he added.

eSAF prospects

A key difficulty lies in sourcing suitable feedstock for HEFA-based SAF for the larger volumes needed, and regulators are, therefore, eying alternative pathways, namely synthetic fuel or eSAF. One difficulty is that the premium for eSAF is even greater. The UK stipulated a buy-out price for eSAF of GBP6,250/mt ($8,351/mt) in its April consultation on creating the SAF mandate.

Lowering renewable hydrogen costs will be instrumental in reducing the price of eSAF, which can be overstated, an official at biofuel license technology provider Honeywell told Platts in February.

In real terms, the costs of producing eSAF could be around 25% more expensive than those of SAF from biogenic feedstock, said Kevin O'Neil, a senior business leader at Honeywell's Sustainable Technology Solutions division.