Renewable fuel producer Aemetis signed an offtake agreement to provide Delta Air Lines with 250 million gallons of low carbon blended sustainable aviation fuel, moving Delta closer to airline carbon neutrality and helping offset renewable fuel compliance costs associated with its refinery.
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The SAF fuel supply agreement between Aemetis and Delta follows the Sept. 29 offtake agreement between JetBlue and biofuel developer SG Preston for 670 million barrels of SAF over 10 years beginning in 2023, showing a growing trend in the hard-to-decarbonize airlines sector through fuel supply.
"This supply agreement is an important step toward the expansion of SAF, which is not only important in helping us achieve our net-zero aviation goals, but also in supporting our customers to achieve their own sustainability goals," Amelia DeLuca, Delta's managing director of sustainability, said in the Sept. 30 statement.
The contract is for 10 years beginning in 2024, the statement said.
Delta, which has stated previously it is working toward replacing 10% of its conventional jet fuel consumption with SAF by the end of 2030, used 690 million gallons of fuel during Q2 2021 at a total cost of $1.487 billion, according to its July 14 quarterly filing with the Securities and Exchange Commission.
The flurry of new offtake SAF agreements supports the Biden administration's goal to produce 35 billion gallons of SAF by 2025.
The Biden administration on Sept. 9 proposed a $1.50-$2/gal tax credit for producing SAF, followed by a $1.25/gal tax credit for SAF on Sept. 10 from the Build Back Better Act from the House Ways and Means Committee on Sept. 10.
Creating more value
During Q2, Delta's average fuel cost was $2.12/gal, adjusted to take into account the 23 cent/gal quarterly loss from the 190,000 b/d oil refinery owned by Delta's Monroe Energy unit in Trainer, Pennsylvania.
Under the Environmental Protection Agency's Renewable Fuel Standard, Monroe Energy is an obligated party with a requirement to blend a mandated volume of renewable fuels into hydrocarbon-based fuels produced at the refinery or buy credits to meet their obligation.
According to the SEC filing, as of June 30, 2021, Delta had $581 million in obligations related to its renewable fuel compliance costs, compared with $55 million as of June 30, 2020. The rise is the result of the escalating cost of RINs -- RFS credits bought by obligated parties to meet their requirement.
The Aemetis-Delta agreement's total value is estimated at more than $1 billion, factoring in low carbon fuel credits from California's Low Carbon Fuel Standard, the value of RINs as well as the $1/gal federal Blenders Tax Credit and the 45Q tax credits for carbon sequestration from the Internal Revenue Service.
So far in Q3, Platts assessments show that the price of SAF with credits on the US West Coast is averaging $7.36/gal. This price factors in all credits except for the 45Q credit, giving it at least a $4.47/gal premium over USWC SAF without credits, which can be used to mitigate renewable fuel obligations.
USWC SAF without credits is averaging $2.90/gal so far in Q3, exceeding the price of petroleum-based jet, which is averaging $2.15/gal for the quarter.
Reducing carbon intensity
Aemetis will produce the fuel at its renewable diesel and SAF facility under development, incorporating carbon capture storage, or CCS, into the fuel production process.
"The 90 million [gal/year] Aemetis Carbon Zero sustainable aviation fuel and renewable diesel plant under development in two phases in Riverbank, California, is designed to produce below zero carbon intensity renewable fuels by utilizing cellulosic hydrogen from waste forest and orchard wood along with on-site CO2 carbon sequestration capacity," said Eric McAfee, Aemetis' CEO.
The plant is powered by 100% renewable electricity, using low carbon cellulosic hydrogen to hydrotreat the renewable oil feedstock to make low carbon intensity RD and SAF, and further reducing carbon intensity by injecting CO2 from the production process into a sequestration well at the plant to permanently capture 200,000 metric tons/year of CO2.
"By replacing conventional hydrogen with cellulosic hydrogen obtained from orchard waste wood (CI=minus 80) and CCS, [Aemetis] is further lowering the carbon intensity of SAF/RD produced at the Riverbank facility to near zero," Credit-Suisse analyst Manav Gupta wrote in a Sept. 30 research note.
The lower the carbon intensity, or CI, the higher the value of the credit from California's LCFS, making the lowest intensity carbon fuels most lucrative.
Gupta further noted that Aemetis will use the most commercially proven technology to make SAF, known as HEFA-SPK, with a feedstock conversion ratio of 90%, a process used successfully by other established renewable fuel producers.
"High feedstock conversion is a key reason that [Diamond Green Diesel, jointly owned by Valero and Darling Ingredients] also uses HEFA to produce RD, at reported gross margins of $3.46/gal in 2Q 21," he said. "It is important to note that not only is [Aemetis] using the most commercial technology to produce SAF, it is also improvising upon it."