Investor caution, tech hurdles derail SAF projects

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First the bad news. In the last two months, more sustainable aviation fuel (SAF) projects have been cancelled or paused than new ones announced since the start of the year.

Fulcrum Bioenergy’s pioneering municipal solid waste-to-fuels facility in Nevada has closed. Fulcrum started producing synthetic crude in late 2022. It had planned to convert 219,000 metric tonnes of garbage into fuel – with most of this going into SAF. Sources close to the project say it suffered from a mixture of technological problems and was struggling to find finance. It defaulted on bonds in November 2023.

Last week, Australia’s Oceania Biofuels appeared to quietly scrap its planned SAF project in Queensland. The company withdrew the project application from the government’s Environment Protection and Biodiversity Conservation and went offline after taking down the website. The planned A$500m ($339m) project, which would have been the country’s first SAF production site, was scheduled to begin production from 2025 onwards.

These first-of-a-kind projects are most noticeable, but there are worrying signs that oil and gas majors are also losing enthusiasm for HEFA projects.

Shell is pausing construction of a biofuel facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands. The company said the decision was taken to address project delivery and ensure future competitiveness given “current market conditions.”

Shell also pulled the plug on its planned e-SAF project in Sweden which was supposed to produce 82,000 tonnes of SAF each year.

Shell’s Rotterdam biofuels facility conversion faced escalating costs, with capital expenditure requirements documented in its 2023 annual filings reflecting a significant increase from $0.58bn in 2022 to $2.1bn.

“Oil majors are pulling back on renewable projects because they prefer to invest in traditional projects that provide a higher return. This is due to shareholder pressure and because they are finding that renewable projects are more complicated and expensive than they thought,” says Keith Lawless, managing director, SAVIA Consulting which offers decarbonisation services to the aviation and travel industries.

UK energy company BP has said that it is refocusing plans and pausing the planning for two biofuel projects. It is also assessing three more. BP has, however, doubled its stake in its Brazilian biofuels business BP Bunge Bioenergia. The company told SAF Investor that this will allow it to meet its biofuels targets in a simpler way.

The closure of Fulcrum, the scrapping of Oceania’s project and the pauses at Shell and BP means the industry has lost 960,281 metric tonnes of annual SAF production. “The project cancellations will definitely impact SAF availability and reduce the aviation sector’s ability to meet regulatory and voluntary SAF targets,” said Lawless.

“The situation reinforces the need for investment in SAF development companies outside the traditional oil and gas sector.”

And the good news? Well there are a number of new projects and investments coming soon. The first six months of 2024 have not been great, but the second half should be a lot better.

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