Europe needs policy flexibility to bridge SAF supply gaps: Horizons

Europe needs policy flexibility as its sustainable aviation fuel market matures, with ambitious SAF mandates meeting feedstock constraints and supply shortfalls, analysts at S&P Global Energy Horizons said during a June 24 webinar.

Under Horizons' base case scenario, the EU is forecast to face a shortfall of more than 17 million mt of SAF by 2050 against its mandated 70% blend rate, with gaps beginning to emerge as early as 2030, particularly for synthetic aviation fuel or eSAF, Nathan Nguyen, principal analyst, biofuels analytics at S&P Global Energy Horizons, said.

"I think all of this points to a need for policy flexibility," Nguyen said. "As the industry matures, that will be essential to managing compliance."

Europe's SAF demand is expected to grow from around 1 million metric tons in 2025 to 3 million mt by 2030 and 21 million mt by 2050, driven by quotas and steep noncompliance penalties.

Policy flexibility could include changes to quotas, multipliers, enforcement mechanisms or feedstock eligibility rules, he said. The EU's ReFuelEU Aviation mandate, which came into force this year, requires aviation fuel suppliers to blend a minimum 2% SAF or face penalties. The quota rises every five years to reach 70% by 2050.

The European Commission will not alter its ReFuelEU Aviation framework during next year's scheduled evaluation, which will produce a report rather than propose revisions, Jo Dardenne, policy officer at the directorate-general for Mobility and transport, said at Sustainable Aviation Fuels Summit in April.

The International Air Transport Association forecasts it should be possible to produce around 400 million mt of SAF in 2050; this is 100 million mt of SAF short of what will be needed then, IATA said last September.

Feedstock constraints

The fundamental challenge facing SAF production globally is feedstock availability, with Europe unable to keep pace with demand growth, Horizons analysts said. Used cooking oil supply from China amounts to only about 6 million mt/year, equivalent to a small to medium-sized refinery, Ji Yang Lum, associate director for biofuels long-term analytics at Horizons, said.

First-generation feedstocks such as seed oils and food crops face scalability limits, while second-generation feedstocks, including UCO, are facing limited supply due to competition between the maritime, road and aviation sectors, he said.

Europe is expected to need more than double the amount of waste-based Annex 9A biofuels by 2030 compared with 2025 levels, reaching 8 million to 8.5 million mt, with most locked into renewable diesel production, Nguyen said. The region will remain a net importer of both renewable diesel and SAF.

Global SAF demand is forecast to reach 100 million mt/year by 2060, representing roughly a 19% blend rate globally, well short of net-zero targets, Lum said. The aviation sector remains one of the hardest to decarbonize because, unlike maritime transport, it lacks alternative fuels at scale.

Industry concerns

The ReFuelEU Aviation policy faces implementation challenges, with industry calling for revisions to make quotas increase on a linear rather than stepwise basis to provide more certainty for project developers seeking long-term offtake contracts.

Airlines are concerned about affordability, given slim margins and higher underlying jet fuel costs, leading to calls for a review of targets and penalties or greater price support to bridge the cost gap between SAF and conventional jet fuel, Nguyen said. The European Commission is conducting its first formal review of the ReFuelEU mandate in 2027.

Platts, part of S&P Global Energy, assessed SAF on a CIF basis in Northwest Europe at $2,629.25/mt June 23, compared to $923.25/mt for jet fuel on an equivalent basis.

Despite the challenges, Europe has a strong pipeline of renewable diesel and SAF plants, including co-processing projects, greenfield developments and refinery conversions, with renewable diesel supply expected to double over the next five years, Horizons analysts said.

Modest Hormuz impact

The crisis in the Strait of Hormuz is having a limited impact on SAF flows globally, with the main effect being increased transportation costs rather than major supply disruptions, according to Horizons analysts.

The increased transportation costs are not a significant factor compared with the overall price of SAF, particularly for flows from China and Singapore to Europe, Lum said.