South Korea's production of eco-friendly aviation fuel is poised to increase as the national flag carrier Korean Air actively partners with major local refiners for carbon-neutral jet fuel and sustainable aviation fuel to counter climate change, but hurdles remain before SAF sees a significant upsurge in Asia.
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Carbon-neutral jet fuel and SAF currently make up only a very small portion of South Korea's overall production of aviation turbine fuel.
South Korea produced 50.79 million barrels of jet fuel in the first seven months of 2021, compared with 74.92 million barrels produced during the same period in 2020, 99.32 million barrels in January-July 2019 and 101.51 million barrels in the first seven months of 2018, according to data from state-run Korea National Oil Corp.
Major refiners aim to increase the share of the eco-friendly products to around 5%-10% within the next three years, buoyed by Korean Air's adoption of such fuels for domestic flights, according to middle distillate marketers at three major South Korean refiners surveyed by S&P Global Platts.
"We will use carbon-neutral jet fuel produced by SK Energy for a month and may expand purchases for additional routes on a longer term in line with global efforts to reduce air travel's carbon footprint," a Korean Air official said.
The airline is also planning to blend more SAF into regular jet fuel for usage, he said.
Korean Air participates in the International Civil Aviation Organization's Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.
In 2017, it became the first Korean airline to use SAF for an international flight by trialing it on a flight departing from Chicago to Incheon. In addition, it has also introduced high-efficiency aircrafts, while developing low-carbon aircraft fuselage structures and supplying them to aircraft manufacturers, according to its 2021 ESG report.
Korean Air's latest agreement with top refiner SK Energy comes after it partnered with Hyundai Oilbank, for manufacturing and consuming SAF.
Hyundai Oilbank runs two CDU with a combined capacity of 520,000 b/d in the Daesan complex on the country's west coast. The refiner is pushing to build a plant for aviation biofuels in its main complex.
Industry sources still remain skeptical about SAF's short-term prospects, particularly at a time when Asia's aviation sector is grappling with low passenger volumes amid the coronavirus pandemic.
SAF is an expensive fuel compared to traditional jet fuel and its widespread uptake has been and will continue to be a problem unless governments, airports or even regions provide incentives such as credits to promote its use, industry sources said.
A source at Korean Air noted that while its domestic flights had recovered to around 80%-90% of pre-COVID levels, international passenger flights were still limited.
"Korean Air's focus is on cash preservation right now and there is not much appetite for SAF at the moment, but I reckon it will be in the works sooner or later," a source at SK Trading International said.
Meanwhile, the source at Korean Air said that their immediate focus was on operations and aviation's recovery flight plan, given the current situation.
"Carbon offsetting is something we are looking at in the long term, as part of efforts to comply with CORSIA mandates, but for now we are focused on sustaining our business, which include efforts to actively convert passenger aircrafts, especially large airliners like Airbus A380 and Boeing-777 planes to cargo, and increase chart flight utilization rates," the source said.
This comes as cargo demand accounts for 85% of Korean Air's overall flight demand presently, he added.
The Platts CEC (Corsia eligible credits) price was assessed at $7.40/mtCO2e on Sept. 20 at 1200 GMT. The price of CORSIA-eligible credits grew exponentially since the start of the year. On the first day of assessment on Jan. 4, Platts CEC closed at 80 cents/mtCO2e.
Although movement restrictions across Asia and the continued risk of a resurgence of COVID-19 cases will likely hamper steady production and sales of aviation fuels for the remainder of 2021, South Korea's 2022 aviation fuel output could recover to above 70 million barrels if higher vaccination rates lead to full population mobility and resumption of key flight routes across Asia by first or second quarter next year, the survey participants said.
"Generally, countries with high rates of vaccination are learning to live with the coronavirus," JY Lim, advisor for oil markets at S&P Global Platts Analytics, said.
While Asia-Pacific kerosene/jet fuel demand in 2021 will remain lower by close to 31% versus 2019 levels, it is expected to be up by 6.6% year on year, according to Platts Analytics.