Sustainable Aviation Fuel: An Expert View

Thorsten Lange: Executive Vice President Renewable Aviation, Neste

We had the pleasure to meet with Thorsten Lange, EVP Renewable Aviation at Neste, earlier this month to catch up following the High Level European SAF conference. We quizzed Thorsten on his views about Sustainability in Aviation and the use of SAF.

A: Good morning Thorsten. Thanks for joining me for the Arvensis Expert Interview discussing Sustainable Aviation Fuel.
Earlier this month, we all attended the European High-Level SAF conference. My main takeaway from the conference was supply, demand and regulation are in a waiting game. Your CEO Peter Vanacker said that ‘the market for SAF will be created at policy level, rather than at Industry level’. I would like to talk first about blending.
What is the main restraint for airlines to take SAF up at a bigger scale?

Neste: Thanks Julia. There are several factors for this.

The first is that SAF is a very young industry. Neste started its SAF journey in 2010. In 2011 Neste partnered with Lufthansa and ran over 1600 flights between Frankfurt and Hamburg to show the industry that SAF is a viable alternative. But little happened after that due to the lack of pressure from the airlines & passengers.  So Neste decided to push forward and create a market for SAF without major partners initially.
The next element is production: scaling production is not something that can be done overnight as it requires large investments and the building of refineries.

The other aspect is that technology and feedstocks need to be developed. This takes a lot of time and preparation.

Lastly, there has been no large-scale consumer pressure for the aviation industry to significantly improve sustainability, particularly its climate performance, so we have lacked sufficient support from all the key stakeholders. We have been lacking a sense of urgency, while the statistics show we should be making massive emissions reductions in all areas of life, the aviation industry included, to combat climate change .

In 2021, however, sustainability is on everyone’s agenda and Neste is working hard to make the SAF products available. Many of the industry forerunners have picked up the pace and started making the switch from conventional fossil jet fuel to SAF. We would love to see a joint effort between all stakeholders of the industry to make SAF available, and the regulators to support its large-scale adoption.

A: Why is the blending mix still as low as it is? How will a European mandate change this?

N: A European mandate is for 1% blending with an eventual target for 14% mandate. Even for 1% there is doubt in the market if the volume can be made available. Let me explain: in 2019, the overall consumption in the world for jet fuel was 330 mil tons. To provide 1% of that in SAF is a tall order. Whilst we are the largest producer of SAF, we can currently only make available 100,000 tons, so about a 1/3 of the requirement.

With the Singapore refinery expansion on the way, and with possible additional investment into the Rotterdam refinery, we will have the capacity to produce some 1.5 million tons of SAF annually by the end of 2023.

A:  I understand that both supply and demand are a restraint, but at the conference, we also talked about safety and cost being major considerations. If you go back to Neste’s role of the evangelist –  how can you help airlines and other stakeholders overcome safety concerns?

N: As an industry, we have redundancies and safety nets in every process of the operation. It has taken roughly 15 years for SAF to get approved. The key thing is that the chemical composition of SAF is fully comparable to jet fuel and fully compatible with existing engines. It has been tested extensively and approved by OEMs, engine manufacturers, and recently also by ASTM. The smallest concern for airlines should be safety. In fact, SAF carries some attributes that are even better than fossil fuels as it burns cleaner and produces fewer contrails which are an additional issue to the CO2 emissions. However, SAF production is about 5 times more expensive than fossil jet fuel’s, the difference varying based on the crude oil price. Bearing in mind Neste-produced SAF is made from waste, it is a little difficult to understand why it is so much more expensive. Let me explain: Collecting, cleaning, treating, transporting the materials to the refinery require sophisticated infrastructures, and upgrading waste into premium-quality fuel requires advanced technology. All this is costly and the result is a premium price that is difficult for airlines to digest bearing in mind their already thin margins. But continuing to use fossil fuels comes with even higher costs considering the cost of the climate impacts on societies globally.

A mandate for staggered increased blending to allow feedstocks to be developed

 

A: What about the availability of SAF in the long term?

N: We can ramp up the production in a staggered manner ensuring steady supply given the availability of raw materials. McKinsey estimates that the availability of waste and residue oils and fats suited for our current production technology will grow up to 35 mil tons by 2030.  This presents 10% of the requirement. You can then increase the availability of feedstocks by harnessing additional materials such as municipal waste. We estimate to have up to 400 mil tons of this type of materials to become available,  so we forecast that in 5 years we are able to cover between 50% and 100% of the worldwide demand for jet fuel with SAF.

A: Thanks, Thorsten. If we then move from supply to the airline operations side, the impact of the cost on the fare is a key concern. As you say, airlines run very thin margins and are under pressure by the growing LCCs. How do you work with airline executives to understand and justify the increase in cost associated with operating on SAF?

N: This depends on the blending amount. Let’s look at a blending mix of between 1% and 14% by 2030. (By the way, Finland and Sweden are aiming for 27% by 2030!). The price gap for this blend is actually very small when you break it down to the ticket price.

For example, a short-haul fare at E150 will be increased by less than $1 with a mix blend of 1%. For long-haul flights, the additional cost is between E3 and E3.50. Roughly we say 1% cost $1.

This is of course a lot considering the typical profit of the average ticket to be $5-$6. Let’s not forget that the price for airline tickets has dropped in recent years and as an industry and society it is something we have to address as flying at these prices is not sustainable. I feel that airlines need to engage with their passenger on this dialogue.

Sustainability is key and here at Neste, we believe that investing now, rather than later, relieves the environmental burden we leave for our kids and grandkids. That is why we have to take responsibility now.

 

Regulation, scale and customer consciousness required to deliver carbon-neutral aviation

 

A: Given that society is changing and the millennials are putting different pressures on brands they interact with, looking for ethical and sustainable products, do you see a rise in sustainable airlines, comparable to the rise of the LCC 20 years ago?

N: I don’t think “sustainable airlines” will be founded. Instead, I believe that those players in the industry, old or new, that can offer their customers services with reduced climate impacts will be the winners in the long run. The market needs consolidation, not new airlines. We observe an increased awareness regarding sustainability and CSR in both legacy and low-cost carriers. They now need to hire good sustainability professionals who understand the changes required. The airline industry is excellent at adapting and changing. Airlines are ready for sustainability but it requires an effort from all stakeholders to get it over the line – from passengers to suppliers, airline and government and regulation. We like to compare SAF to the renewable diesel market a decade ago: thanks to regulation the adoption happened relatively easily and it is now just part of the equation. That said, the passengers and their willingness to pay a bit more play a significant role here.

A: We haven’t touched on one of the key stakeholders – IATA. As about a quarter of the global airlines are members of IATA, I would like to understand what role IATA plays in the drive for SAF? During the IATA Sustainability conference in September last year, we heard big commitments being made by all stakeholders. From your point of view, what role does IATA play in the hopefully exponential update of SAF?

N: First and foremost, IATA has to represent and defend the airlines’ positions. The initial response to SAF was that it was not possible due to the cost. But IATA has also changed just like the industry and sustainability has gained importance. This is true not only from the perspective of using SAF but also from driving improvements on the operational side. For example, the usage of European skies is not optimized, we could prevent aircraft 5 or 6 holdings which is burning fuel unnecessarily and present an immediate area for operational improvement. IATA is working hard on this together with the industry.

Back to SAF – certainly IATA has provided the airlines with a gentle push towards adoption. Making SAF mandatory and letting the market take care of the introduction would be a great step forward. It would be ideal to offer a staggered mandate, and this might well be the direction.  You may have read ATAGs recent publication where they built out different scenarios on how to achieve the ambitious goals for SAF adoption over the next 30 years. IATA had set the goal of 2% and now the industry can work on making that fly, so to speak.

 

Small steps by IATA to get airlines’ adoption increased

 

A: Let’s move on to airports- what is the impact of higher blending onto airport infrastructure?

 N: The great thing is that SAF is no different from jet fuel so there is no retrofit. We see this as a major benefit compared to hydrogen or electric solutions, which of course are also on the agenda for airlines to evaluate. There are no changes on the airport side, the supply chain, storage, and engines. So there is no action to be taken by airports and the fuel infrastructure.

That said, we see huge interest from airports around the world to become greener. Most airports want to and need to grow but have targets to reduce their CO2 emissions. Residents often see airports as a burden rather than an asset and entrance to the world. Airport executives have to work hard to reduce pollution and noise levels. We cooperate more with airports now and they support SAF to make flying more sustainable and acceptable at a societal level.

 

Sustainability at the heart draws the best talent

 

A: We have been talking to Neste for some time now and we are really impressed with the deep-seated drive towards sustainability which is at the core of the company. Originally you were just a local oil refiner, now a leader in sustainable and circular solutions. Where does this passion come from and how does it manifest itself inside the business?

N:  I have been working with and for Neste for many years now and I can tell you that we really walk the talk . The sustainability journey started long before our current CEO and Neste really has a mission that is well understood and well communicated. When we interview new talent, we ask them why they want to move to Neste. Over 40% tell us that our slogan ‘Creating a healthier planet for our children’ speaks to them deeply and that this is the reason they want to work with us.

You may have seen our position Number 4 on the Corporate Knights report which makes Neste the 4th most sustainable company in the world. We have been among the leaders on that list for some years and whilst more companies are joining the list, Neste defends its top 5 position year after year against high tech firms who do not have oil legacy. We believe this is because we focus on sustainability and are capable of improving our performance every year. We increase our efforts every year focusing on environmental responsibility and human rights right through to work on the board. This attracts specialists and increases our sustainability knowledge.

 

Thanks Thorsten, for this insightful conversation and we look forward to speaking with you again in the future.