The airline industry is at a "critical" point in building a credible green energy path, said Willie Walsh, CEO of the International Air Transport Association, but believes commitments from key players will contribute to an upsurge in sustainable aviation fuel production in the next decade.
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"I'm optimistic that when we go into that period between 2030 and 2040 that we will see a significant ramp up being SAF production," he told S&P Global Platts in an interview June 9, noting that economies of scale will drive the price down and make biojet more competitive with conventional jet fuel.
Right now using more SAF is an expensive proposition. S&P Global Platts assessed jet FOB NWE cargoes at $601.75/mt June 10, compared with SAF ex-wharf NWE at $2,387.25/mt. The spread between the two has grown steadily from $1,348.23/mt April 28 to $1,785.50 June 10.
"It has been somewhat frustrating to see the low volumes of production that we've witnessed in recent years, and we're clearly in this catch 22 situation," Walsh said. "We need greater investment in SAF, we need greater production to drive down the unit cost and clearly we'll get much greater uptake if the unit cost is lower," he said.
Airlines are struggling as a result of the coronavirus pandemic and this makes it difficult for them to pay the premium for SAF but boosting demand for the green fuel is important, Walsh said.
"We have to be able to demonstrate that there is a credible path to a lower carbon airline industry, and SAF is one of the key elements in getting there," he said.
Airlines are putting their money where their mouths are and are investing in SAF production. International Airlines Group, which owns airlines including British Airways, Iberia and Air Lingus, and of which Walsh was formerly CEO, announced in April it will power 10% of its flights with SAF by 2030.
BA is collaborating with fuel technology firm Velocys to manufacture SAF from household and commercial waste.
Ryanair also said in April it will power 12.5% of its flights with SAF by 2030.
This would be building from a low base.
On a global scale, assuming facilities with SAF production capabilities shift to producing them entirely, SAF volumes could amount to around 1-2% of total global jet fuel demand, according to Platts Analytics.
This is supposing that this production capacity would be available for SAF and not for other types of biofuel. With the rest of the transport industry also increasingly using and mandating biofuel use SAF must compete for production capacity with transport fuels like renewable diesel.
SAF and energy efficiency are key weapons in the aviation industry's somewhat limited arsenal against climate change, at least for now, according to market watchers.
There is ongoing development in aircraft efficiencies but radical technological solutions to decarbonizing aviation will not come until around 2035, for example with Airbus targeting a hydrogen-powered aircraft by 2035, Walsh said.
Electric and other alternatively-fueled aircraft have limited scope to limit aviation's contribution to greenhouse gas emissions as current technological prospects indicate such aircraft will only be able to power short-haul flights, sources said.
"About 80% of the CO2 that the industry produces today is from flights of greater than 1,500 km," Walsh said.
Nevertheless, there is cause for optimism. "We are looking at an industry that has a great track record when it comes to technology. I'd say the next five years are going to be critical in being able to demonstrate to those who are critical of our industry that we have a credible path to a lower carbon industry," Walsh said.
Fragmentation in the aviation sector means it is ripe for consolidation but with balance sheets weak now as a result of the coronavirus pandemic significant M&A activity is unlikely for a couple of years, Walsh said.
"It would be a brave CEO that would spend the limited cash that they have available to acquire another airline," he said.
The industry is too fragmented and the traditional poor profitability is not sustainable. "Consolidation is part of the solution but not the [whole] solution and I would expect to see consolidation starting again in a couple of years' time," he said.