by Jaime Llinares Taboada (OPIS) … In Spain, energy major Cepsa recently announced a €3 billion ($3.15 billion) investment to build a 2 gigawatt (GW) hydrogen production hub and a program for testing sustainable aviation fuel (SAF) on more than 220 commercial flights.
I spoke with Cepsa’s commercial and clean energies director, Carlos Barrasa, a former BP executive who is now guiding the Spanish company along the path to energy transition.
In the conversation, Barrasa outlined his view on how the SAF industry will develop. Although this biofuel is currently more than twice as expensive as traditional jet fuel, he believes that prices will steadily converge and that costs won’t be the main issue in the long-term.
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Right now, SAF is only produced in very small volumes at pilot facilities. Significant volumes of SAF uptake will kick in between 2024 and 2026, when the use of SAF starts to become mandatory for airlines. Our goal at Cepsa is to become a significant player in this industry and help our clients decarbonize at the lowest possible cost. We think that there will be a green premium for these SAF products, which will steadily converge with traditional jet-kerosene prices.
The SAF market will of course operate on a supply-demand basis. From 2025, supply will increase dramatically because several plants will be commissioned from that year. As for demand, [European] legislation requiring aircraft use 2% SAF in their fuel mix will take effect from 2025, with mandatory consumption targets increasing gradually until 2050. Supply and demand will set the price.
At least until 2030, market dynamics will depend on the development of the current dominant technology in SAF production, which is based on processing waste oil. This process is economically simple because production plants use proven technology. However, securing this type of feedstock is difficult, and therefore production economics will depend on feedstock supply.
As [waste oil] feedstock supply is likely to be relatively constrained, we are researching more abundant feedstock types such as lignocellulosic biomass [plant or plant-based material, which mainly includes agricultural residues, energy crops, forestry residues and yard trimmings]. This technology is still in development, but there are pilot production plants.
In addition, in parts of northern Europe, some in the industry are betting on e-Fuels [produced from renewable energy, water and carbon dioxide], which is a different set of technologies related to waste re-gasification. This opens a door to a bigger set of different types of waste products that can be used, where feedstock costs are significantly lower. The problem is that e-Fuel technology itself is very expensive.
Therefore, there is a trade-off between high feedstock cost and low capex in the dominant technology of SAF production [the generation of biofuels from waste oil] versus future technologies such as e-Fuels that involve relatively low feedstock prices but very high capex.
OPIS: Do you expect any of the SAF technologies to become the industry standard?
CEPSA: I think they will all co-exist because they offer different advantages. The currently dominant SAF technology will prevail in the next 10 years, affecting market prices while moving the airline industry towards decarbonization. Meanwhile, lignocellulosic and e-Fuels technologies will continue to develop, with the former appearing towards the end of this decade, and e-Fuels from 2030 onwards.
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I think cost won’t be the industry’s issue in the long term. The main issue will be the professionalization [in terms of commercial and business practice development] of the feedstock origination and waste collection industry.
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In that regard, as the sector professionalizes, we will see an increase in feedstock supplies compared to what we have today. READ MORE