Finnish energy giant Neste has invested EUR1.6 billion ($2.32 billion) to double the size of its Tuas South refinery, becoming the world’s largest producer of sustainable aviation fuel. But can flying ever be safe, carbon-neutral and affordable?
Two major headlines involving Singapore’s aviation sector arrived just days apart in the middle of May: Singapore Airlines (SIA) reversing into the black after three years of losses with a record $2.16 billion profit, plus the opening of the world’s largest jet fuel production facility here in Tuas South. The country’s flag carrier and Finnish energy giant Neste join multiple stakeholders hoping to take sustainable aviation fuel (SAF) to the skies but what is fuelling its demand?
If emissions from the global aviation industry were a country, it would have placed sixth between Japan and Germany in 2019. The aviation sector’s emissions have remained at around 2% of total global emissions for some three decades, staying above the round number even when borders shut in 2021.
As countries emerged from Covid-19 lockdowns, aviation emissions in 2021 reached around 720 metric tonnes of carbon dioxide equivalent (MtCO2), according to the International Energy Agency (IEA), regaining nearly a third of the drop from 2019 levels seen in 2020. With air travel recovering quickly, this trend is clearly rising, to the detriment of worldwide sustainability efforts.
At the 41st Assembly of the International Civil Aviation Organization (ICAO) in October 2022, member states adopted a collective long-term aspirational goal of net-zero carbon emissions by 2050. How we will get there, however, is still up in the air.
A large share of aviation’s carbon emissions arises from the combustion of kerosene, known as Jet A-1, in aircraft engines.
Hydrogen-powered planes or electric aircraft could be feasible for short-haul flights, but these will require completely new designs and fuelling infrastructure. Hence, KPMG estimates that they will only become mainstream after 2050.
In comparison, SAF can be used in existing planes and engines, with fossil fuel companies claiming that its use reduces life-cycle carbon emissions by up to 80% compared to conventional jet fuel.
At present, SAF cannot be used alone. It has to be blended with conventional jet fuel at various ratios but capped at 50%. To be sure, the concept is not new: Virgin Atlantic launched the world’s first biofuel flight in 2008, when a Boeing 747-400 flying from London to Amsterdam carried in one of its four fuel tanks a 20% mix of biofuel derived from coconut and babassu, deemed a close substitute to palm oil.
Fifteen years on, are countries and airlines ready to go full throttle on SAF? Not yet, according to experts. National SAF mandates will come into effect from 2025, again with the Europeans taking the lead.
Mandates are likely to start low but will tighten rapidly during the 2030s and beyond, according to KPMG’s November 2022 report on the global aviation sector.
EU regulators are leading the charge, having passed the ReFuelEU Aviation proposal in April. Once in place, the new rules will require aviation fuel suppliers to supply a minimum share of SAF at EU airports, starting at 2% of overall fuel supplied by 2025 and reaching 70% by 2050.
In addition, aircraft operators departing from EU airports must only refuel with the amount required for the flight. This will avoid emissions related to extra weight or “tankering” — the practice of deliberately carrying excess fuel to avoid refuelling with SAF.
Singapore’s aviation plans imminent
Similar rules could soon apply to Singapore’s skies. The Civil Aviation Authority of Singapore (CAAS) is studying SAF mandates and incentives as part of the Singapore Sustainable Air Hub Blueprint, says Transport Minister S Iswaran.
First announced in February 2022, the blueprint is expected to be released this year. It will include emissions reduction targets for 2030 and 2050, along with decarbonisation pathways for the public and private sectors.
The imminent report is set to be the greatest market-mover for decarbonising Singapore’s aviation sector, a journey that SIA claims it started on a decade ago.
In 2011, the airline took its first step by joining Airbus Helicopters’ SAF User Group “to exchange knowledge, experiences and best practices on SAF”. Six years later, SIA operated the world’s first “green package flights” from San Francisco to Singapore using sustainable biofuels on the “fuel-efficient” Airbus A350-900, when a total of 12 such flights took off over three months. In 2020, SIA worked with Stockholm airport operator Swedavia to deploy SAF for flights from Stockholm to Moscow via the airport fuel hydrant.
Then, SIA brought it home. In July 2022, SIA, CAAS and Temasek subsidiary GenZero announced the next phase of a pilot to deliver blended SAF to Changi Airport via the airport’s fuel hydrant system.
Under this pilot, 1,000 tonnes of neat SAF were supplied by Neste and blended with refined jet fuel at ExxonMobil’s facilities in Singapore. SIA and Scoot flights have been using this blend since, and the pilot will be completed in the coming months.
At the release of SIA’s results for FY2023 ended March 31, CEO Goh Choon Phong said the group is entering a contract to purchase more SAF but the airline, known for being tight-lipped about its vendors, declined to confirm if the supplier will again be Neste.
As part of the pilot, CAAS, SIA and Temasek also announced the sale of 1,000 SAF credits from July 2022. “This provides customers … an avenue to reduce their carbon footprint, stimulate demand for SAF, support the development of the nascent SAF industry and advance the adoption of SAF for aviation sustainability.”
SIA introduced voluntary carbon offsets to passengers in June 2021, and the airline says all contributions go towards verified carbon offsets projects across Asia, such as preserving rainforests in Indonesia, building solar energy projects in India and distributing clean-burning stoves for villagers in Nepal.
However, passenger response has been tepid, says SIA’s Goh. “The take-up is not strong. We will continue to try to encourage [this], but at the end of the day, it will be up to individual passengers to decide.”
These moves are part of SIA’s commitment to achieve net-zero carbon emissions by 2050, a target the company announced in May 2021.
Neste’s Tuas South expansion
Finnish energy giant Neste decided to invest in Singapore near the end of 2007 and operations began in 2010 on a 19ha refinery at Tuas South.
The production capacity of the original refinery gradually increased to 1.3 million tonnes annually and at the end of 2018, Neste made an investment decision to expand the Singapore refinery through a EUR1.6 billion ($2.32 billion) investment that would more than double its land area to 45ha in total.
At the launch of the expanded refinery on May 17, Neste claims it can now produce up to a million tonnes of SAF here each year, in addition to renewable diesel and renewable raw materials for polymers and chemicals. Together, the Tuas South refinery’s annual production capacity is 2.6 million tonnes.
With close to 300 workers in total, the refinery also boasts its own hydrogen production unit, which captures gases emitted from production and creates the hydrogen needed to refine fuel.
Neste’s refinery produces biofuels, which is a broad label for jet fuel produced with agricultural crops, or industrial, agricultural, municipal or household waste. Some examples include used cooking oil, corn husks and waste animal fat.
Neste partnered ExxonMobil for the 2022 pilot as the refinery “did not have the capability” to blend the SAF then, says Sami Jauhiainen, Neste’s acting executive vice-president for renewable aviation. The partnership also met the requirements of the pilot’s three stakeholders, he adds.
“But going forward, we are able to do this ourselves; we can source the fossil jet fuel that we need from any refinery in the region and we have the kind of fully integrated supply chain for our own use,” says Jauhiainen to The Edge Singapore.
At the launch of the expanded refinery, Neste announced it was buying a stake in a fuel storage and infrastructure joint venture at Changi Airport. It will join Neste’s global network of airports, which includes the San Francisco, Heathrow, Frankfurt and Narita airports, that supply SAF directly to aircraft.
“We can now mix our sustainable aviation fuel together with conventional jet fuel and certify that the blended SAF meets the specification of jet fuel standards,” says Jauhiainen. “We can market that SAF blend to Asia-Pacific-based airlines as well as global airlines. [We can also] make it available as a solution here in Singapore, which is logistically the most convenient location to use our product, which is manufactured here.”
To ensure the long-term mass adoption of new products, the economics need to make sense as well. At the moment, SAF costs three to five times more than conventional jet fuel. This varies according to feedstock prices, says Jauhiainen. During Covid-19, for example, diners could not visit restaurants and that impacted the availability of used cooking oil. The price of animal fats also follows seasonal patterns, such as the Lunar New Year.
However, biofuels will “never achieve the price of jet fuel”, claims Boeing CEO Dave Calhoun, whose company, together with Airbus, dominates the aircraft-manufacturing business. Speaking to The Financial Times in May, Calhoun says Boeing will scale up and aim to be more economical in building planes that can use SAF, though that alone is unlikely to bring prices down. “I don’t think we will ever achieve the price of Jet A. I don’t think that will ever happen. It is more positive and it will have an impact, but it’s gonna be what it’s gonna be.”
I don’t think we will ever achieve the price of Jet A. I don’t think that will ever happen. It is more positive and it will have an impact, but it’s gonna be what it’s gonna be.- Dave Calhoun, CEO of Boeing
Thus, there are concerns that SAF will make holidays and business trips costlier. GenZero’s chief executive officer Frederick Teo says it is natural for passengers to be price-conscious. “If you and I were to buy a bowl of noodles, we wouldn’t want to pay a few extra cents. But at the end of the day, do we agree that we need to decarbonise aviation? Do we agree that we need to decarbonise our economic activities and our industries? If we all agree that that has to be done, and that comes with some costs, are we prepared to pay?”
Somebody will ultimately have to foot the bill, he adds. “We are either going to pay by being able to invest in and use slightly cleaner, more sustainable solutions today, or we are going to pay by having to have very costly infrastructure to adapt to climate change.”
Teo was still working in Temasek when the SAF pilot was formulated. According to him, their team had calculated that flight ticket prices would only increase by about 10% when SAF is blended at the maximum 50%. “We always think with three [to] four times more expensive fuel, would it lead to a crazy increase in ticket prices? The answer actually is no,” says Teo.
We always think with three [to] four times more expensive fuel, would it lead to a crazy increase in ticket prices? The answer actually is no.- Frederick Teo, CEO of GenZero
Fuel is often the largest cost item running a flight but salaries, depreciation and airport charges are also major factors in determining the profit margin of each ticket the airline sells.
Not to be left out of being seen to contribute towards sustainability, some airports have offered incentives to reduce this green premium. In 2022, London’s Heathrow Airport became the first to launch an SAF incentive programme that covers up to 50% of the extra cost to make it more affordable for airlines. In February, Heathrow said it aims to triple the percentage of SAF used at the airport in 2023 to approximately 1.5%, with a target of 11% by 2030.
Airport incentives have been helpful in getting the market started, says Jauhiainen. “But in the longer term, there needs to be a more systematic approach to how that cost is passed on to the people who fly and are causing the pollution of aviation, just like mandates already in place for road transport.”
The real problem for airlines is the relative — and not absolute — cost, he adds. “Airlines make narrow margins, so it is really difficult for airlines to take additional costs if their competitors are not doing the same. There needs to be either a policy that says everyone needs to absorb the cost or airlines need to find end customers who are willing to pick the price to deal with their carbon footprint, like cargo shippers, corporates with business travel or individual passengers.”
Yap Mun Ching, chief sustainability officer at AirAsia operator Capital A, spoke candidly about airlines’ cost pressures at a conference earlier this year. When CEO Tony Fernandes handed her the portfolio in 2020, Yap felt the airline, which was still trying to recover from the pandemic, would have other priorities.
She recalls Fernandes saying: “Well, that’s the time when you can get most creative.” Speaking at Economist Impact’s Sustainability Week Asia in February, Yap says: “So, my job really has been to look at the options that we have and align it to what goes well with business and sustainability.”
Yap knows she is fighting an uphill battle. She cited surveys showing dismal response towards voluntary carbon offsets — just 1% of passengers in Asia would pay the additional charge, and only 3% of their European counterparts would do the same. “Everyone wants a cheap flight but they complain about aviation being pollutive … Nothing is going to come free.”
Everyone wants a cheap flight but they complain about aviation being pollutive … Nothing is going to come free.- Yap Mun Ching, chief sustainability officer of Capital A
Meanwhile, Jacqueline Lam of Boeing International, citing a different set of numbers, is more optimistic about passengers’ priorities in the future. “There’s actually a growing number of between 20% and 30% of consumers that are willing to pay, and this corresponds with a lot of respondents being part of the millennial generation [and] Gen Z, which are going to be the largest class of consumers going forward,” says Lam, who is regional lead of global sustainability policy and partnerships.
Speaking at a separate panel at the Economist Impact conference, Lam thinks banks are ridding their portfolio of fuel producers without acknowledging their decarbonisation pathways. “The energy sector folks frequently tell me they don’t have access to financing because it’s seen as a new technology, it’s high-risk and it doesn’t fulfil some of the bankability criteria. So, our financial institution colleagues out there: help us out. We need to transcend these siloed approaches, that this is an aviation industry issue; we need everybody to come along on that journey.”
SAF not enough
To be sure, not everyone is convinced of SAF’s promise for the future and supply of the fuel is just one reason.
SAF production had a bumper year in 2022, tripling y-o-y to at least 300 million litres, according to the International Air Transport Association (IATA). That is, however, a drop in the ocean — 0.06% to be exact — compared to the 450 billion litres a year that will be required by 2050 if the industry decides to adopt SAF in order to meet its net-zero targets.
Meanwhile, Shell has shelved two Singapore projects exploring biofuels and base oils. The oil and petroleum giant announced in late-2021 that it was studying a 550,000-tonne per year project at Bukom Island to produce and supply SAF to Asia’s airports.
The suspension came amid lukewarm demand for SAF in Asia, as few airlines in the region have embraced the fuel, according to market sources cited by S&P Global Commodity Insights.
Shell is, however, building an 820,000 tonne per year biofuel plant in Rotterdam and targets to produce about 2 million tonnes of SAF annually by 2025. The company wants at least 10% of its global aviation fuel sales to be SAF by 2030.
Aside, the CEO of a Singapore-headquartered renewable energy developer minced no words in his personal podcast, calling SAF “pretty much mythical”.
Assaad Razzouk, CEO of Gurin Energy, says in an October 2022 podcast episode that airlines, manufacturers and oil companies “are all just selling a fantasy”. “Why do I say that? I say that because the industry cannot meet its goals, and it knows that.”
Razzouk, who goes by “The Angry Clean Energy Guy” online, claims SAF production will never meet aviation needs, “irrespective of how much money you throw at it”. “Creating enough of this stuff to replace jet fuel by 2050 would call on us to convert all of the world’s grasslands to biofuel crops. Now, that’s clearly impossible, not going to happen. So why are we talking about this stuff?”
Creating enough of this stuff to replace jet fuel by 2050 would call on us to convert all of the world’s grasslands to biofuel crops. Now, that’s clearly impossible, not going to happen. So why are we talking about this stuff?- Assaad Razzouk, CEO of Gurin Energy
Instead, electric planes could be feasible for short-haul flights, says Razzouk, citing couriers DHL and UPS, who have both placed orders for electric aircraft. DHL ran a trial in September 2022 with the first-ever fully electric commuter plane flying for eight minutes and announced the order of 12 similar e-cargo aircraft.
Aviation will need all the challenges or all the solutions available to reduce their emissions, says Jauhiainen. “A vast majority of jet fuel is used on long-haul flights and for those long-haul flights, it looks that there’s not really too many other technological solutions to reduce those emissions … Electric aviation will probably come and play a role in the short-haul space; maybe hydrogen-powered planes will also come down the line.”
Beyond SAF, KPMG’s experts think the solution lies in power-to-liquid (PtL) synthetic fuel. Also known as “e-fuels”, these are produced using low-carbon hydrogen and captured carbon dioxide.
However, cost remains a constraint. “As PtL fuel is significantly more expensive than any other SAF, realising its potential cannot be achieved without major investment in electrolysis and carbon capture technology development and deployment.”
PtL fuel can offer a more sustainable alternative to bio-SAF, echoes Le Minh Khoi, head of global hydrogen research at Oslo-headquartered energy research firm Rystad Energy. “Only about 60% of SAF demand in 2050 can come from bio-SAF, the rest is PtL.”
The supply chain will either get more complex with bio-SAF or leaner with hydrogen and batteries, adds Le. “Additionally, there is potential for hydrogen-fuelled long-haul flights in the late-2040s and beyond, provided that the development of concept planes progresses favourably.”
Photos: Albert Chua/The Edge Singapore, Rystad Energy