Rabobank: Biofuels Propped Up by SAF

LINCOLN, Neb. (DTN) -- Ethanol and biodiesel production has been a catalyst for economic growth in rural America for the past 15-plus years, but the biofuels' future may rely heavily on the continued rise of sustainable aviation fuel production, according to a new report from ag financier Rabobank.

RaboResearch Senior Grains and Oilseeds Analyst Owen Wagner is the author of the report, "The Future for Sustainable Aviation Fuels," which was released this week. He told DTN in an interview recently during the Ag Media Summit held in Palm Springs, California, that SAF is "absolutely" promising for the aviation industry and coming onto the scene at an interesting time for biofuels.

With vehicle electrification on the horizon, biofuels of all kinds are fighting for markets.

"What are you going to do with all that ethanol? What are you going to do with all that renewable diesel, eventually? And if you look at the kinds of volumes that would be needed by the aviation sector in this country, they match up pretty closely with the kinds of volumes that are currently being used in ground transportation," Wagner said.

U.S. SAF plants currently produce about 25 million gallons per year, with production capacity expected to rise to 2.2 billion gallons by 2026. That would be equivalent to 15 billion pounds of soybean oil demand and 1.8 billion bushels of corn demand if SAF production hits its full potential.

But the Rabobank report states even though it is promising for now to use biofuels for aviation, there are future challenges such as limits to farmland and how much corn and soybeans can be grown for aviation needs, and more economic options such as synthetic fuels replacing the biofuels for planes.

INCENTIVES TO USE SAF

Wagner told DTN there have been cash incentives for the airlines to commit to using SAF. "The commitments are real," he said, adding the Inflation Reduction Act offered "a very lucrative tax credit for sustainability." He noted there have also been state-level tax credits in Illinois, Washington and California.

SAF is on a precipitous rise also because airlines are aiming to deal with pressure on their carbon footprint, Wagner explained.

The airlines are consumer-facing businesses, "that do admit they're accountable for something like 2% to 3% of U.S. greenhouse gas emissions -- they've been under a lot of societal pressure. And they want to make sure they maintain that freedom to operate -- they'd rather they get out ahead of the problem, at least themselves, than have some sort of draconian response that could really disrupt their industry," Wagner said.

GASOLINE DEMAND HAS PEAKED

One of the reasons SAF will play a major commodity-supporting role is because gasoline demand likely has peaked, according to the Rabobank report, meaning the demand for biofuels including ethanol and biodiesel also has peaked.

"The potential long-term importance of SAFs in agriculture is difficult to overstate," the report said.

"With reduced demand for terrestrial liquid fuels, SAFs offer the agricultural sector a much-needed alternative with the potential to extend the runway for liquid biofuels and the higher prices conferred to commodity feedstocks as a result."

The report said "waning demand" for biofuels for ground transportation and emerging non-biobased SAF feedstocks like syngas, mean SAFs are "unlikely to have the same additive effect" on biofuel markets that ethanol and biomass-based diesel have had during the past 20 years.

"That said, SAFs offer a critical new outlet in the face of electrification, extending the runway and potentially providing decades more support for biofuels and their feedstocks," Rabobank said in the report.

SAF PURCHASES TAKE OFF

Commercial purchases of SAF in the U.S. started to take off in 2016 when United Airlines began using SAF purchased from World Energy. SAF purchases expanded to 5 million gallons in 2021 and nearly an estimated 20 million gallons in 2022, Rabobank said.

Currently, there are 16 SAF plants either under construction or planned. Global SAF production reached 80 million gallons in 2022, or about a 40-fold increase in five years.

"If you look at the list, there's 16 or 17 entities right now that have made these announcements," Wagner told DTN prior to the report coming out. "I would say at least 15 of those are very believable. There might be one or two that are on shaky ground financially. But we really do anticipate the vast majority of those announcements coming to fruition."

Rabobank said because the future of biofuels is in question with the expected rise of electric-vehicle technology, SAF production would continue to provide price support for corn and soybean farmers.

"Over the years, numerous academic studies have attempted to assign a value to the level of the corn price supported by ethanol," Rabobank said.

"In 2014, the EPA compiled 19 such studies and found the weighted average impact to corn prices to be 2.9% per every billion-gallon increase in ethanol production. At 15 billion gallons, this would equate to 40% to 45% of the value of corn. For soybeans, the direct impact of biomass-based diesel on prices is arguably far less given that a smaller share of the bean's value is used in fuel."

President Joe Biden called for the use of 34 billion gallons of SAF per year by 2050.

Rabobank said because of the strides made in SAF production in a short time, it is "tempting to conclude that aviation fuel represents an opportunity for a quantum leap in agricultural commodity markets."

Agriculture's opportunity comes from current technology's use of vegetable oils to produce SAF.

SAF production will demand 7.5 million metric tons (mmt) of vegetable oil and nearly 10 mmt of corn by 2026, Rabobank said. That would be the equivalent of 1.8 billion bushels of soybeans and 350 million bushels of corn.

"Tempering this enthusiasm, however, must be a recognition that while biofuels enjoy exclusive access to the SAF market today, other fuel pathways, particularly those form synthetic chemical pathways, represent a competitive threat in the long term," Rabobank said.

IMPLICATIONS FOR AG

Rabobank outlined several headwinds farmers may face in taking full advantage of the SAF market.

First, the report said corn and soybean production is limited in how much SAF production they can support.

"Assuming GREET (carbon model) energy balances for HEFA and ATJ biological platforms (current SAF technologies), we observe that prevailing technologies allow for SAF production of between 50 and 250 gallons per acre using soybeans or corn," Rabobank said. (GREET is Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation; HEFA is Hydroprocessed Esters and Fatty Acids; ATJ is alcohol-to-jet fuel.)

"To achieve 34 billion gallons of production exclusively on these platforms would require hundreds of millions of acres of agricultural land that is simply unavailable."

The report said SAF's future lies in technologies that currently are not fully developed and costly, particularly the use of solar power to produce SAF.

"Meanwhile, current research suggests that 1 acre of solar panels could, in theory, produce upward of 7,000 gallons of SAFs, depending on photo electrochemical conversion rates and syngas tuning, in which case all SAF production could take place on fewer than 5 million acres," Rabobank said.

"For now, however, SAFs from e-fuel remain prohibitively expensive. Current estimates performed by Germany's Potsdam Institute for Climate Impact Research for the pilot scale production of e-gasoline using wind turbines indicate costs of about $200 a gallon. That said, engineers believe that once current technologies reach an industrial scale, costs of $8 per gallon, comparable to cost estimates for biofuel SAFs, will be achieved -- with costs having the potential to fall even further as the technology matures."

Currently, there are seven SAF production pathways developed by industry that have been approved by ASTM International (formerly American Society for Testing and Materials).

Just one pathway, HEFA synthetic paraffinic kerosene, or HEFA SPK, is currently producing SAF commercially in the U.S.

Rabobank said other facilities are pursuing the Fischer Tropsch synthetic kerosene with aromatics (FT-SPK) and ATJ are either producing SAF on a pilot scale or are under development.

"Costs to produce HEFA SAF average about $1.50 per gallon of installed capacity. By contrast, the ATJ pathway that converts ethanol to SAF is yet to be fully commercialized, requires a far broader suite of capital investment," stated the report. "All approved pathways for SAF use biomass as a feedstock. Looking ahead, however, we see that platforms based on synthetic feedstocks, namely sequestered hydrogen and/or carbon dioxide, will emerge as viable alternatives."

DTN Associate Content Manager Elaine Shein contributed to this story.

Read more on DTN:

"Sustainable Aviation Fuel Future Foggy," https://www.dtnpf.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

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