Shell Aims For Dominance In $325 Billion Aviation Fuel Market
Shell thinks aviation fuel will be one of the critical growth areas to explore, as ground vehicle transportation fuel and other segments are expected to decline over time. One of these expected growth segments will be sustainable aviation fuel (SAF), where a project with Lufthansa and World Energy is starting up in California.
Shell Aviation and Boston-based World Energy will help Lufthansa meet carbon emissions reduction targets by supplying the SAF on three routes operated by Deutsche Lufthansa and Swiss International Air Lines from San Francisco International Airport (SFO) to Frankfurt, Munich, and Zurich. The project is expected to supply up to one million gallons of SAF to Lufthansa over the duration of the agreement.
World Energy will produce the SAF at its refinery in Paramount, Calif., from a feedstock of agricultural waste fats and oils. California is a typical marketplace for testing, development, and deployment of alternative fuels — with funding, carbon credits, and demand available. SAF is a California Air Resources Board (CARB) certified low carbon fuel and it’s also been certified by Roundtable on Sustainable Biomaterials (RSB). It’s blended with conventional jet fuel at a ratio of up to 30 percent.
“Alongside new technologies and high quality carbon credits, sustainable aviation fuel — at scale — has a significant role to play in reducing carbon emissions for the aviation industry,” said Anna Mascolo, vice president, Shell Aviation.
The deal is considered one of the most significant SAF supply contracts globally, and its the largest SAF volume to be delivered to SFO since the airport last year announced to bring the alternative fuel to its operations.
Lufthansa and other global airlines have been testing alternative fuels over the past dozen years, with biofuels having been the norm for quite a while. In 2008, Virgin Atlantic became the first commercial airline to fly a blend of the fuels. International Air Transport Association (IATA) expects about 1 million flights in 2020 to be fueled by a blend of traditional jet fuel with alternatives.
IATA, and the aviation industry as a whole, took SAF as the official name in recent years. While biofuels come from plant or animal biomaterials, SAF includes biofuels and other alternative sources. The standard requires that SAF can be safely mixed with conventional jet fuel to varying degrees; and airlines can use the same fueling infrastructure and the fuel does not require adaptation of aircrafts or their engines.
Shell sees aviation as a significant energy sector to stay ahead of the game. That fuel market is expected to grow from its current market value at around $160 billion to over $325 billion by 2026. The latest study by Global Market Insights, Inc., states that growth will be driven by rising construction and expansion of airports, along with rising production and delivery of aircrafts.
The study also points to rising pressure from regulatory agencies, and support from aviation industry participants, to further the expand its market share. An example cited by Global Markets Insights is a 2019 $1.7 million grant from the US Dept. of Energy sent to the Fuel Laboratory of Renewable Energy for accelerating the development of sustainable aviation fuel.
Shell is one of several energy giants competing in the jet fuel market cited in the study — along with BP, Gazprom, Reliance Petroleum, and state-run Indian Oil Corp. More strategic partnerships have been taking place to expand presence in the market. In November 2019, BP signed an agreement with Sonangol for expanding its business in Angola.
International Energy Agency (IEA), in its latest annual World Energy Outlook, included aviation fuel as a growth segment energy companies will need to consider as ground transportation fuel will see decline. Global oil demand is expected to peak in the mid-2020s and flatten out in the 2030s.
“Oil demand for long-distance freight, shipping and aviation, and petrochemicals continues to grow. But its use in passenger cars peaks in the late 2020s due to fuel efficiency improvements and fuel switching, mainly to electricity,” the IEA report concludes.
Commercial carriers in freight, shipping, and aviation, are all facing increasingly stringent government mandates on emissions reductions and reliance on petro-fuels. Shipping carriers are now facing the International Maritime Organization’s new regulation on sulfur emissions — which is expected to impact fuel prices and the economics of transportation.