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S&P Global — 18 July 2024

Daily Update: July 18, 2024

Fueling the Flight to Sustainable Aviation

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy

Air travel is one of the most carbon-intensive human activities, burning a massive amount of fossil fuels with each flight. With the rebound in air travel following the COVID-19 pandemic, the aviation sector’s share of total global CO2 emissions is expected to rise rapidly. Sustainable aviation fuels may hold the key to decarbonizing air travel and unlocking its net-zero future.

Derived from renewable resources with little to no carbon emissions, sustainable aviation fuels (SAFs) offer a promising alternative to petroleum-based jet fuels. SAFs can be in the form of drop-in fuels, such as biofuels — those made from cooking oils and other organic waste — and e-fuels — those that use green hydrogen and CO2 as feedstocks. They can also be non-drop-in fuels such as hydrogen fuel cell powertrains. According to S&P Global Commodity Insights' forecasts, SAFs will account for 0.61% of aviation fuel consumption globally in 2024. This will grow to 24.06% in 2050, when total SAF consumption could reach 2.2 million b/d.

Around the world, the shift to SAFs from jet fuels is gaining momentum and efforts are under way to advance their adoption. In the US, Honeywell announced the launch of its hydrocracking technology to produce SAF from biomass, which has the potential for a higher SAF yield while reducing costs and byproduct waste streams.

Similarly, Universal Hydrogen successfully conducted a 15-minute test flight of a hydrogen-powered prototype aircraft in 2023 and was looking to have its hydrogen fuel cell powertrain enter into service on a regional aircraft in 2027. However, after failing to obtain further funding, the company wound up in June. On S&P Global Commodity Insights' “Platts Future Energy” podcast, Universal Hydrogen COO Arnaud Namer said that while the technology for hydrogen fuel production is ready, the process for regulatory approval and certification from the Federal Aviation Administration is a significant barrier.

In Europe, Finland-based Neste conducted the world's first in-flight study of the use of 100% SAF in a commercial aircraft, demonstrating significant emission reductions. The study’s results “provide additional scientific data to support the use of SAF at higher concentrations than [the] currently approved 50%," said Alexander Kueper, vice president of Neste's renewable aviation business.

Asia is also making big strides on SAF adoption. In Japan, Tokyo is testing the feasibility of converting the city's municipal waste into SAF. In Indonesia, state-owned energy company Pertamina is pushing for the adoption of SAF for commercial flights, and the government has partnered with Japan to conduct a feasibility study on large-scale waste treatment facilities. In Thailand, Bangchak has joined forces with Japan's Sumitomo on procuring used cooking oil and selling SAF. Bangchak’s SAF plant in Bangkok is expected to start commercial operations around the end of 2024, with SAF production to begin in the first quarter of 2025.

On the regulatory front, Singapore mandated that SAFs be used for the country's departing flights starting 2026. Japan aims to switch 10% of its conventional jet fuels to SAFs by 2030. While the US has taken an incentive-heavy approach toward SAFs, Europe and the UK have adopted a more mandate-heavy stance. The Inflation Reduction Act in the US offers tax credits for hydrogen and biofuels as a way to lower additional costs associated with SAFs. In Europe, the ReFuelEU Aviation rules state that SAFs must account for at least 2% of aviation fuels at EU airports starting 2025, rising to 70% by 2050. For flights taking off from the UK, the British government set a SAF target of 10% by 2030 and 22% from 2040.

"A lot of people in the market will use the analogy of the carrot and the stick, where [the] EU is all stick and the US is all carrot ... without incentive structures in place in the same way that they have in the US, there is a significant additional cost that comes from SAF," Simone Burgin, associate editor for biofuels pricing at S&P Global Commodity Insights, said in a separate episode of “Platts Future Energy”.

While the future looks bright for SAFs as a way to cut airlines’ carbon footprints, the market is still in its infancy and challenges abound. Widespread adoption is a waiting game due to limited availability and funding, the high cost of production and uncertainty around regulatory policy, according to S&P Global Commodity Insights.

Today is Thursday, July 18, 2024, and here is today’s essential intelligence. 

Indian Carbon Investors Move Away From Renewables On Weak Demand, Additionality Concerns

Carbon project developers in India are moving away from renewable energy to generate credits amid ongoing weakness in demand for the segment within the voluntary carbon market, and some concerns over declining additionality of such projects, market sources told S&P Global Commodity Insights. The sources added that interest had moved to setting up projects in the afforestation/reforestation, cookstoves, REDD+ and biochar segments in the country, with these categories often fetching a premium over their renewable counterparts.

—Read the article from S&P Global Commodity Insights

Monthly PMI Bulletin: July 2024

The global economic expansion slowed in June but remained the second-strongest seen for just over a year according to PMI data. The latest surveys indicated that growth remained robust, though business confidence cooled amidst still-elevated inflation and political uncertainty. The J.P.Morgan Global PMI Composite Output Index — produced by S&P Global — fell to 52.9 in June from 53.7 in May. Historical comparisons indicate that the PMI is broadly indicative of the global economy growing at an annualized rate of 3.0% in June, with a 3.0% rate also signalled on average for the second quarter of 2024 as a whole.

—Read the article from S&P Global Market Intelligence

Sukuk Market: The Calm Before The Storm?

S&P Global Ratings is maintaining its global sukuk issuance forecast at about $160 billion-$170 billion following the market's good performance over the first half of 2024. Total issuance reached $91.9 billion over the first six months of this year, up slightly from last year's $91.3 billion. But a notable difference is the 23.8% increase in foreign currency issuances, which reached $32.7 billion by June 30, 2024, up from $26.4 billion a year earlier. The main contributors to this increase were issuers from Saudi Arabia, United Arab Emirates (UAE), Oman, Malaysia and Kuwait.

—Read the article from S&P Global Ratings

Flurry Of New European LNG Projects Risk Underutilization Amid Muted Demand

European LNG regasification projects are set to increase the continent's LNG capacity by 121 million mt/year before the end of the decade, yet with waning European demand and utilization rates at operating terminals below 50%, questions arise to the potential overinvestment and underutilization of the market. At present, there are 42 projects across Europe with a 2025 start date, including 31 proposed projects with 11 under construction.

—Read the article from S&P Global Commodity Insights

Listen: Five Years Later, Looking Back At The Berkeley Gas Ban

In this episode of Energy Evolution, host Taylor Kuykendall is joined by Tom Dichristopher, senior reporter at S&P Global Commodity Insights, to discuss the movement to ban new gas hookups and require all-electric construction for new buildings. In 2023, a court struck down a gas ban in Berkeley, California, which was the first of its kind in the nation. The decision came as part of a legal settlement with the California Restaurant Association, and Berkeley will no longer enforce the ban while it goes through the process of repealing it.

—Listen and subscribe to the podcast from S&P Global Commodity Insights

Your Three Minutes In Cyber Security: New Rules Will Change EU Banks' Management Of Third-Party Provider Risk

New regulation is set to improve European banks' resilience to cyber security failures at software, services or systems supplied by external companies, known as third-party providers (TPP). The EU's Digital Operational Resilience Act (DORA) will impose a new risk management framework that demands increased monitoring and reporting of TPP cyber risk. That could necessitate changes to relationships (and contracts) to facilitate greater banking oversight of TPP, which are often core to banks operations and central to open banking initiatives.

—Read the article from S&P Global Ratings

Artificial Intelligence, Datacenters And Energy: Is APAC Ready For The Challenge? (July 24, 2024)

Asia-Pacific is catching up with AI-driven datacenter expansions, with a few emerging metros in Southeast Asia expecting a robust pipeline of mega-sized data centers. Power has come up as the key commodity in this business, and it is often a limiting factor in where these new datacenters can be built. Datacenters built for AI applications often require higher power density and energy requirements than traditional facilities.

—Register for the webinar from S&P Global Market Intelligence