Where is the SAF going to come from?

May 9, 2024 By ,

May 7, 2024

By Jim Mladenik

In a past article – SAF in the IRA Era – How do the incentives stack up? – we described why sustainable aviation fuel (SAF) is more expensive to produce than renewable diesel (RD) and how the Inflation Reduction Act (IRA) increases the incentives to produce SAF over the next four years. In an earlier article, we showed how the value of SAF has historically been less than RD in the states with the largest renewable fuel incentives such as California. Recently, however, several states have created additional incentives that would further increase SAF value for volumes sold in those states. In this article we describe what needs to be done to significantly increase SAF production, assuming project investors find these incentives to be sufficient to justify the additional costs.

Fractionation & Logistics Are the Key

As laid out in the table below, by the end of 2024 there will be at least 30 facilities producing RD for supply into the U.S. including Neste’s two large plants in Singapore. (There are also multiple RD production facilities in Europe but supply from these into the U.S. has not been material; as such, we have excluded them from this write-up.) Many of the existing RD facilities are located in petroleum refineries or converted petroleum refineries which have fractionators (i.e. equipment to separate SAF from RD in the refining process) and access to the product tanks and pipelines necessary to segregate and ship different fuels to market.

Since significant economic incentives for SAF production did not exist prior to the enactment of the IRA, investors in most newly constructed RD plants (aside from the likes of Neste and Diamond Green) couldn’t justify the additional capital costs required to add fractionation equipment to their facilities. As such, many of the U.S. RD production facilities do not have the flexibility to also produce SAF.

When fractionation is available, the volume of SAF produced can typically be up to about 15% of total RD production. For facilities that already have this capability, the SAF incentives provided by the IRA appear to be sufficient to enable SAF supply into markets that also have Low Carbon Fuel (LCF) programs. If half of the facilities listed in the table below have fractionation capacity, SAF production capacity by year-end would be about 30 KBD.

2024 RD Facility Nameplate Capacity

Sources: Publicly available information

Technology providers also offer another pathway to increased SAF production by cracking RD-range material to SAF thus increasing the potential SAF yields at RD production facilities from 15% to a much higher value. This has generally not been economic because it reduces the total volume of RD/SAF produced and increases production of lighter (and less valuable) products such as propane and naphtha. However, additional new technologies are being developed to reduce the production of these lighter products.

This technology shift is currently being considered by Montana Renewables which has produced SAF via fractionation since early last year with a capacity of 2 to 4 thousand barrels per day (KBD). With this technology shift, the catalyst and operating conditions at Montana Renewables would eliminate RD production, maximize SAF production, and minimize production of lighter products such as naphtha and propane. This MaxSAF initiative would boost SAF production to greater than 80% of the product slate – 15 KBD of SAF with total renewables production of 18 KBD.

But incentives are required…

What would happen if sufficient SAF incentives were implemented and maintained long enough to justify the significant investments needed to maximize SAF production? Projects to enable SAF fractionation from RD and to maximize SAF production instead of RD could be implemented at most of the listed facilities. As mentioned above, the fractionation capability enables SAF production of about 15% or RD capacity while maximization technologies allow SAF production as high as 80-90%. So, if the considerable capital costs were invested in these technologies, SAF production for U.S. consumption could eventually approach 200 KBD (3,000 million gallons per year, mgy). However, it does not yet appear that current incentives are large or lengthy enough for investors to justify the necessary capital outlay. Watch for RD producer announcements regarding these types of investments to determine whether they are proceeding or whether the implementation of additional incentives is required.

Stillwater follows the state and federal legislation being considered for SAF quite closely. For regular, deeper insights into the renewable fuels markets and the LCF programs which incentivize their development, sign up for Stillwater’s LCFS Newsletter! The first seven days of your subscription are free, and you can cancel at any time (but we’re confident you won’t want to)!

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