What is SAF and why is it being mandated by the EU?
SAF stands for Sustainable Aviation Fuel, which is a type of aviation fuel produced from renewable and sustainable sources, aims to reduce the carbon footprint of the aviation industry. 2G EtOH, or second-generation ethanol, is a form of ethanol derived from non-food sources, such as agricultural residues or waste biomass. In the context of SAF, 2G EtOH serves as an intermediary feedstock for the production of sustainable aviation fuels via the AtJ pathway. .
The EU’s 2025 mandate requiring a 2% inclusion of Sustainable Aviation Fuel (SAF) in aviation fuels marks a significant first step towards decarbonising the aviation sector, reflecting a long-anticipated move towards sustainability. However, the surprise lies not in the mandate itself, but rather in the relatively low bar it sets to start. With the EU mandating 2% in 2025 and a gradual increase to 20% by 2030 and further increments to 60% by 2050, Poland faces a pivotal moment in its oil and gas industry. Currently producing approximately 5 million litres of refined oil and gas for jet fuel daily (equivalent to 32.3 thousand barrels per day and expected to double by 2035), Poland must swiftly adapt to renewable and eco-friendly alternatives to meet these ambitious targets. This transition will not only impact the industry’s infrastructure and practices but also its overall contribution to a greener future. It calls for a proactive and strategic response to align with EU regulations and drive environmental sustainability forward now.
Industry impact
LOT Airlines and all flights operating within the EU will be obligated to integrate 2% Sustainable Aviation Fuel (SAF) by 2025. Poland, with its current daily production of 32.3 thousand barrels of Jet fuel, will require slightly over 100,000 litres of SAF to meet this mandate. The 2025 requirement for Poland is relatively modest, representing just under 20% of a standard Alcohol to Jet (AtJ) SAF refinery’s output. To produce the necessary intermediaries for the refinery, 200,000 litres of 2G EtOH are needed (based on current consumption levels), equivalent to the output of four TITAN platforms, costing around 680 million euros. However, the construction of TITAN requires 18 months, and as of now, the ground hasn’t been broken.
As the 20% Sustainable Aviation Fuel (SAF) mandate approaches within the next five years, the demand (at 2023 levels and without growth) is set to exceed 1 million litres of SAF daily. Meeting this demand will require the deployment of 40 TITAN platforms for 2G EtOH production, with an estimated cost exceeding 6.8 billion euros. Additionally, the construction of two refineries, costing around 3.4 billion euros combined, becomes imperative. Embracing SAF not only proves to be profitable but is also critical for meeting regulatory requirements. The identification of 40 suitable sites for construction in Poland not only fulfils this growing demand but also generates over 2,000 direct and indirect skilled jobs across the country. Looking beyond 2030, the pressure continues, with the EU mandating a gradual increase to 60% by 2050, creating 25 years of steady growth. In parallel, parts of Asia are expected to follow the US example, mandating 20% SAF before 2030, making long-haul routes challenging for airlines without a reliable domestic SAF production infrastructure.
Building intermediary resources, such as Hydrogen Producer Gas + Microbial Fermentation Platforms like TITAN, offers significant benefits to Poland. These platforms play a crucial role in the circular economy by converting waste carbon into valuable resources especially the intermediaries like 2G EtOH for SAF. The TITAN platform, for example, produces a whole range of fuels, chemicals, and materials, contributing to the adoption of low-impact ethanol fuels, eco-friendly chemicals, and sustainable materials. The platform’s ability to process plastics and textiles into biodegradable alternatives aligns with environmental sustainability goals.
Poland’s abundant forest reserves and limited municipal incineration plants position the country to harness these platforms effectively. Embracing such technologies not only challenges the EU’s current linear consumption model but also positions Poland as a self-sufficient player in producing nature-like fuels, chemicals, and materials that replace those currently sourced from imported oil and gas. TITAN addresses waste management and a single TITAN produces enough smokeless spare heat to supply a large town. Poland’s ability to create a new industry in the so far forgotten semi-rural cities and large towns, creating new jobs, wealth, and businesses, providing clean local electricity and heat whilst challenging the transport hubs in other European countries, contributes to a more sustainable and circular economy. This move is not only a big step forward for Central Europe’s image but also a masterstroke in fostering economic growth and environmental stewardship.
Is SAF a profitable business?
SAF currently averages 6.99 USD per gallon in the US without blending mandates, presenting a significant over-cost burden for airlines. However, TITAN proves to be profitable at around 1.40 Euro per litre even before scaling up, offering distinct advantages such as availability and competitive pricing. This profitability makes it a crucial component for planning the transport hubs of the future, including CPK, which must integrate SAF into their long-term business strategies, especially for transatlantic and Asian routes starting in 2025.
The United States, as the largest producer of 2G EtOH, is poised to implement a 10% Sustainable Aviation Fuel (SAF) mandate by 2025, propelled by the Inflation Reduction Act (IRA). This development presents a considerable challenge for foreign airlines operating in the US, as the IRA explicitly limits SAF usage to domestic consumption. In anticipation of these regulations, proactive airlines such as Lufthansa, British Airways (BA), and Air France have strategically increased SAF availability. They have achieved this by forming alliances with US refiners and making early investments in the US SAF market over the past decade, aiming to avoid exclusion from US airports due to protectionist policies.
Virgin Atlantic, Lufthansa, Philippines Airlines, Air India, and Japan Airlines (JAL) have exhibited foresight by making early investments in the Alcohol to Jet (AtJ) Pathway for Sustainable Aviation Fuel (SAF). By doing so, they have secured exclusive access to AtJ ASTM-certified SAF reserves. This proactive strategy not only ensures compliance with forthcoming mandates but also grants these airlines a competitive advantage in the continuously evolving trans-continental aviation industry landscape.
“Few airlines omitted any reference to Sustainable Aviation Fuel (SAF) in their annual reports last year. Those who overlook the importance of SAF are at risk of imposing financial burdens on their local economies or being acquired by larger, more successful airlines. Certainly, none of them will secure benefactors willing to invest in constructing potentially-profitable global transport hubs on their behalf.”
Rocking the foundation of Poland’s aviation business
The stakes for failing to supply Sustainable Aviation Fuel (SAF) as mandated are high. According to the proposed EU mandate guidelines for 2025, airlines could face substantial fines, calculated at least twice the yearly average price of conventional jet fuel, multiplied by the quantity of SAF not utilised.
With Poland currently refining approximately 5 million litres of jet fuel daily as of October 2023, and with Sustainable Aviation Fuel (SAF) priced at 2.40 Euro per litre (expected to increase post-mandate), potential daily fines could exceed 500,000 Euros to maintain growth projected above current air traffic levels by 2025. Such a cost risk is unsustainable for the Polish aviation industry in five years’ time. However, it’s unnecessary given that within the same timeframe, we have the opportunity to construct and significantly scale the number of TITAN platforms, initiating the SAF refineries industry needed to prevent taxpayers from bearing substantial financial burdens.
The EU mandates have been looming on the horizon for nearly a decade, and any surprises now come from across the Atlantic, where mandates are expedited, most likely to be set to start at 10% next year – a milestone achieved by US producers, driven by the Inflation Reduction Act (IRA) and in favour of US protectionism.
Poland, endowed with abundant forest reserves and waste, has the potential to excel in the aviation industry, a vision materialized through the innovative TITAN platform. Envisaging a scenario where Polish aviation grows by 50% from 2019 to 2025, possibly doubling by 2035 (as per the statistics underpinning the CPK business case), it is evident that a substantial investment of around 20 billion Euros is required for the establishment of Polish SAF refineries and the production of Polish 2G EtOH intermediaries. This investment is crucial for constructing the necessary infrastructure, solidifying Poland’s position as a regional leader in Sustainable Aviation Fuel (SAF) production.
“There is no justification for us to lag behind, and certainly, there is even less rationale for us to be absent from the forefront.”
Pre-COVID-19, forecasts for air passenger numbers in Poland from 2019 to 2035 formed the basis of CPK’s plans, projecting a consistent growth trajectory from 46.2 million passengers in 2019 to an impressive 94 million by 2035. However, the post-COVID reality has raised doubts about the viability of CPK’s business plan. Despite the potential for a long-term rebound in passenger numbers, LOT managed only 8 million passengers in 2022 at 80% seat capacity. This stark contrast and the availability of Polish-made SAF in good time prompts a reassessment of the assumptions underlying CPK’s strategic vision.