The SAF Podcast
The SAF Podcast is the only podcast on the internet that exclusively covers sustainable aviation fuel (SAF). So if you want to find out the real issues and challenges are for commercialising and scaling SAF production, look no further.
Every week we will be hearing from senior industry leaders who are actively shaping the future of SAF and aviation.
The SAF Podcast
The SAF Podcast: SkyNRG's SAF Market Outlook 2024
Join us in this week's episode of The SAF Podcast as we welcome back SkyNRG as Tom Berg unpacks their latest Market Outlook report.
Tom shares the reason why they produce these reports, the meticulous methodology behind their report, which filtered 350 renewable fuel facilities down to 210. We dive into the major themes that appear from the report: Global policy developments and how important it is they develop into regulatory frameworks and the implication on global production opportunities, the competition for feedstock for Used Cooking Oil (UCO) and Renewable Diesel producers and whether delays in expected ramp ups should be concerning.
With the report being in it's fourth year, we ask Tom what they are now able to analyse that they were not previously and what can be learnt about market developments by mapping their predictions from previous editions.
We also discuss the regional implications on policy certainty and how trade corridors can be seen to be opening, aligning with policy criteria and feedstock requirements. Tom also tells us what regions he thinks are ones to watch, which region he wants to hear more from.
We can't wait to have this conversation next year to discuss the findings and market development in 2025.
You should check out the full report here, well worth a read: https://skynrg.com/skynrg-releases-sustainable-aviation-fuel-market-outlook-2024/
If you enjoyed this check out our last episode with Dani Charles, Veriflux where we discuss US tax incentives and the requirements of accurate record keeping in biofuels and SAF: https://www.buzzsprout.com/2202964/15236511
Host and Producer: Oscar Henderson, SAF Investor
Hello and welcome to the latest episode of the SAF podcast this week. We're delighted to be joined by Tom Berg from Sky Energy. Now, tom, I've got a little confession to make before we start. I think you've successfully won the longest list of questions that I've ever sent to a speaker before we do a podcast.
Speaker 2:I'm honored to have the title. It's good to be you, Oscar. Thanks.
Speaker 1:So this week, in this episode, we're going to be looking at predominantly your market outlook report, which came out when we released this Thursday last week. So, tom, do you just want to explain your background, your role at Sky Energy, before we deep dive into what the Outlook report says?
Speaker 2:Of course, sure, so going back in time, I did my bachelor's degree in earth sciences and then went on to study environmental sciences at UGF University, which kind of propelled me into a career in consulting. So I worked for a consulting firm called Guidehouse for about four years, so working as a management consultant, basically advising large corporates and governments on the interface between industry, decarbonization and climate policy, and then transition to Sky Energy where I now lead our European team on policy and sustainability, which means overseeing the work we do with policymakers at the national and EU level and really assess the impacts of the policies that are being developed on our sector and continuously think as well about how these policies can be improved to accelerate the sector. And then the sustainability piece of my work really means working with our supply and capacity development teams to ensure that staff that we supply meets the sustainability criteria that we set ourselves and then it also receives a positive advice from our external sustainability board.
Speaker 1:And then I would say, as a third pillar of my work, I focus on thought leadership as well, and that's also where the staff market outlook piece comes in. So we did an episode with your colleague, oscar Meijer Inc. And we looked at Sky Energy from right at the beginning when you were looking more on the procurement side, all the way through going through the three different projects you've got under development around the world. But another thing that you're actually becoming quite well known for are these market outlook reports. Why do you do these reports? Because they seem a lot more sort of consultant wheelhouse in doing these industry reports.
Speaker 2:Exactly.
Speaker 2:I think, first of all, it stems from the fact that we've been in this business indeed since 2009, and we know quite a bit about what's driven this sector and what's needed to propel it forward, and so, to that end, sky Energy also has an advisory arm where we actually help large corporates and governments advance their staff strategies.
Speaker 2:So I think this also fits into that a bit, but initially we didn't plan to make these public because about four years ago, my CEO at the time asked me to support on building out Sky Energy's 2030 strategy strategy and as a part of that, we were asked to actually do a bit of a consultancy type assessment, but mainly for internal purposes, to see, okay, what is the demand that's coming from the mandates and how many of these announcements can we expect to materialize before that time, and what are the factors that can fill the gap between announcements and demand.
Speaker 2:And so should we be announcing more, more staff production capacity as Sky Energy? And when we saw the outcomes of the report, we found that we had quite an interesting piece of information in our hands that could actually further inform the sector as well and be very useful in discussions with policymakers in terms of what's the state of the SAF market and how could it develop in the coming years, and what else should we do to make sure that we achieve these targets and mandates that we've set ourselves? And so, yeah, it's a great conversation starter and I think it can really give a sense of direction for the whole market, and that's also how we intend to use it.
Speaker 1:So how do you go about creating this report? So how do you go about creating this report? What's the sort of methodology used in terms of, you know, sort of gathering all this information together when you look at all the different projects that have been announced, and sort of putting it all together in this report? How do you go about doing that?
Speaker 2:Right, yeah, so so we initially we just look at all the SAF and renewable diesel announcements that are announced worldwide, right? So we identify all those renewable fuel announcements based on public information. Step two is actually really selecting projects that we think have the highest probability of reaching production, or rather excluding those that have a low feasibility. So that means that we exclude projects that are currently in feasibility stage, which are quite a lot, as so many of the announcements that you see today saying I've begun to announce or work on a staff facility are currently actually just in feasibility stage. We also exclude projects that haven't really provided progress updates in the last two years or so.
Speaker 2:And finally, we exclude projects that have also communicated that they will not be producing SAF. So renewable diesel projects, for example, that are predominantly focused on the road biofuels market. And we also exclude some projects where we see that it does have a high degree of compound risk, right, so technologies that haven't really been demonstrated before, in combination with huge feedstock risk and financial risks and policy risks. So there are a couple of facilities there that we exclude as well. And finally, we adjust staff output where needed. So that means that we adjust staff announcements where we have market intelligence that differs from the public announcement, for example in terms of how much staff that we'll be producing. And finally, when facilities say we are going to produce X amount of renewable fuel, we look at the technology that is licensed and then, with our knowledge of these technologies, we look at the average staff yields that we can expect from that and that, as an aggregate, leads to the estimates that we put out in our South Market Outlook.
Speaker 1:So how many projects does that mean that you have to disregard because you said it's a lot?
Speaker 2:It's quite a lot. Yes, so of the 350 facilities or so that are in the database, we ended up actually using 210 for the estimates in the report. So that's excluding quite a large chunk of projects, right, most still being in the feasibility stage. But you also have to imagine that we included renewable diesel plants as well. That could convert to SAF pretty easily. But we know that they are focusing predominantly on the road biofuels market and so they end up not being included, of course, in those estimates. So, yeah, 211 end up being used for those estimates.
Speaker 1:So I should just say before we begin that I'll put a link to the online version of the report in the description of the podcast, and I'd recommend that you'll go and check it out, because it's a very, very detailed report with some very interesting findings in it. So, starting at the beginning of the report, philippe, your CEO, in his foreword said that this will be a key year for projects targeting operations before 2030. And then, on the opposite page, the beginning of the executive summary of the report, says the global SAF market is at a turning point. So it's pretty clear that you think 2024 is a very important year in terms of reaching 2030 targets for production. Why do you think that is?
Speaker 2:Absolutely, absolutely. Well. What's what's? What's super interesting to me is that until now, uh, all the demand we've seen was was voluntary, right, but next year we'll have the European or the EU and the UK asking for over a million tons of SAF in their mandates, right, suggesting that actually most of the demand globally will be mandated their mandates suggesting that actually most of the demand globally will be mandated. So you actually see a shift where demand from SAF is, in this accelerating phase, mainly driven by policy, and that's to me pretty, pretty fascinating to see.
Speaker 2:But regarding the comment by Philippe on this being an important year for projects starting operation for 2030, I believe that's true because there is a significant chunk of projects about two-thirds in the EU, but more than 80% of capacity in the US who have not yet taken FID but are expected to produce before 2030.
Speaker 2:And so that means that these projects need to progress the decision gates pretty fast, complete engineering studies and then take FIDs and all the spending required for that, and that requires policy certainty, and that is mostly there in the EU and the UK now, but not in the US, and you have to think that about 40% of the total staff capacity announced globally is in the US, and so a lot of meeting our 2030 global goals hinges on those projects being able to progress, and so we think that, mainly, the US really needs to step up its game there in terms of providing market certainty, Because we really cannot afford one or two more years of delays, right, because it means that we'll be shooting or not achieving our 2030 global goals. Because it means that we'll be shooting or not achieving our 2030 global goals.
Speaker 1:Are you talking about longevity of certainty there? Because obviously there's the tax incentive structures which are in place, which are due to expire at the end of 2027. But obviously the mandates whether you're talking EU, uk stretch through to 2030 and beyond 2050. So is that the longevity piece of it, sort of something that you're looking for, particularly the US, to sort of work out?
Speaker 2:Exactly exactly.
Speaker 2:And so I think even Jugo came out a couple of days ago saying that they cannot progress their projects if they don't have more certainty around the tax credits after 2027.
Speaker 2:And we think that makes a lot of sense, right? Because if you look at how these projects are structured, you often require a lot of debt financing and you need to demonstrate that you can pay off your debt within, within 10 years or within the tenure of a debt, of the debt. And that means that you know, with only two years of tax credit incentives being able to factor that into your business case that that's not sufficient to close to close that business case. And so you need you need longevity of incentives and uncertainty over a longer period of time, because two years of incentives will only trigger those projects that are, you know, already operational or have very short payback times, that are have to make an investment of 10, 20 million and can pay that back in a pretty short amount of time. And so I think, over the long term, mandates can really provide that certainty, and I think inevitably that's where the US will also have to go to in one way or another. Yeah, really looking at also other jurisdictions what they're doing right now.
Speaker 1:I think that makes a lot of sense. But this is one of the major trends that, certainly when I read the report that came out of it, is that there is a lot of good work happening in terms of policy being set and announcements being made, but it's sort of transitioning this policy that's being worked out into sort of more regulatory frameworks that then the whole industry can sort of cling on to and build itself around. And that's probably one of the aspects that needs most work on in actually to get these projects accelerated.
Speaker 2:Get them past FID, wouldn't you say exactly, exactly because there's a need, as you say, a lot of a lot of momentum around SAP policy development. So you see a lot of momentum around SAP policy development. So you see a lot of early stage discussions around mandates. You see consultations going on in Japan, in Australia, around SAP incentives. But I think it's key now to really make decisions around sustainability criteria, targets, non-compliance systems and that's where business cases are really made. Compliance systems and that's where business cases are really made, and I think that's what the next year we have to focus on to provide the market certainty for all of these projects.
Speaker 1:So we can be more certain about the announcements that we see in the market today. Another aspect I found quite interesting in the report was the very obvious underrepresentation of co-processing in the amount of SAF that's being produced from lots of oil and gas majors. So I mean, there are a lot of them involved in co-processing, a lot of them in Europe. There are sort of very notable ones. But do you think there needs to be more transparency in terms of how much SAF is being co-processed, who's co-processing it and where, and then, or do you think it's more a case of they need to get more engaged in SAF the SAF industry, the oil and gas majors in terms of actually co-processing more, or do you think it's a transparency or an actual sort of capacity issue that we're seeing this under-representation?
Speaker 2:Yeah, what's really interesting about co-processing is that we know a lot of it is going on, but we don't know exactly how much. A lot of these co-processing activities are not publicly available. Don't know exactly how much right A lot of these co-processing activities are not publicly available. And so I think to be able to have an accurate representation of how things are evolving in a sector and how co-processing activities stacks up against more dedicated HEPA projects, more transparency, will be really really much, much, much, much appreciated, because that helps us also steer policy better in a in a way. And so if we end up in a situation where, let's say, for the mandate, you need 2.8 million tons of staff and we see that half our projects make up 2 million tons, but actually the more cost efficient compliance option, which is co-processing, also puts puts out 2 million tonnes, well, that then provides huge uncertainties to the other 2 million tonnes of projects, and so I think that's where more transparency would be great and hopefully we can get there in the coming years.
Speaker 1:There's the other arm of sort of co-processing oil and gas is sort of the renewable diesel storyline and how there are lots of renewable diesel projects sort of being constructed. There is the discussions about the potential for competition for feedstocks and this is one of the other sort of. One of the three things that I picked out is about the feedstock security within the report and the issues around potentially having to import feedstock because there's too much competition for locally sourced feedstocks could actually pose quite a logistical challenge for people looking to produce SAF, particularly in particular pathways, whether it's looking at sort of biomass and ethanol so the ethanol alcohol jet pathway or the heifer pathway. There's always been lots of discussions around the challenges of getting access to used cooking oil and those feedstocks. What's the sort of going through. The report told you about that issue.
Speaker 2:Yeah, I think what we tried to show in the report is that, you know, of course we're developing a SAF market outlook, but the feedstock issue is much, much wider than that. Right, there's many more sectors that also require this feedstock. We're looking at biodiesel for maritime and roads, we're looking at renewable diesel and, in in parallel, these sectors also taking off, specifically the renewable diesel sector. So if you're looking, for example, at the us renewable diesel sector, there's well around 10 million tons of announcements there as well requiring a lot of this waste feedstock, leading to a situation where the us is now a net importer of waste feedstock versus that exporter which it was about two years ago, and so I think that's putting huge pressure on these waste feedstock markets.
Speaker 2:And, um, what's what's interesting insight for me as well is that many of these projects in in in the us, but also globally announce their project in a with a feedstock portfolio that consists of waste feedstocks, but also of crop-based feedstocks, and so what we expect is that, when these waste feedstocks come under a huge pressure, a fallback option will be these vegetable oils, and so that means that quite a significant chunk of the SAF sector is actually relying on these agricultural feedstocks to be able to get to production and we think sort of from a sustainability point of view and with the eye on net zero, it's about emissions right, and so a lot of these crop-based pathways reduce emissions in a much lower fashion than these waste-based pathways, and so you're going to be needing a lot more of that to be able to achieve net zero versus the more sustainable waste-based projects, and so that has massive implications as well on how much investment needs to go to the sector.
Speaker 1:And so I think continuing to focus on sustainability, but marrying that with feedstock availability is going to be an ongoing challenge and also again emphasises the need to transition in the longer term and also in the medium term, to these other pathways alcohol, jet gasification and e-fuels and also the other big issue with these crop-based feedstocks that are used in SAF is that lots of them aren't actually eligible for as they're not actually entitled to be called SAF in Europe. So as soon as you start looking at the transportation, the importation, exportation of SAF itself, that becomes a lot more of an interesting prospect, because a lot of it would not be able to go to Europe and be called SAF.
Speaker 2:That's correct. Yeah, so in Europe and in the UK they've specifically said we do not want SAF made from food and feed crops or agricultural commodities, and so a lot of the capacity that is being developed around the world does have that, mainly in South America and in North America, I'd have to say. Asia-pacific is still very much focused on waste-based feedstocks and so that means that only that waste-based portion could be exported feedstock portfolio made up of crop based and waste based. You would have to mass balance that out in a way and then only be able to use the waste based portion for EU compliance. So this gives rise to interesting dynamics of SAF trade as well and which regions can actually start trading with each other and which kind. And this also gives rise to that map that we also show in the South Market outlook of how we expect those dynamics to play out, with potentially trade relationships between Japan and the US, who have quite similar views on a feedstock.
Speaker 1:But not a lot of that could come to Europe. Actually, that diagram you mentioned is probably, I think, think, the most interesting diagram that's in the report and I think it's a new diagram that you've added to the report that wasn't in it last year. Were you able to do that? Because you were able to see trends like that developing from policy certainty that's been established and the sort of maturity of sort of where feedstocks are going and processes and how different regions and countries are aligning in terms of how they're viewing the SAF market.
Speaker 2:Yeah, it's really stemming from the better picture we've gotten about the demands coming from different regions. Right, we tried to do a similar thing last year and the year before, but then it was mainly the EU and and us that had really announced ambitions around how much staff they would they want to have in 2030. And now we see brazil coming, coming forward, we see the uae, we see turkey thinking about mandates, and then india and china potentially as well, and that um, you know, gives super interesting insights as to, okay, what is the capacity announced versus the regulatory demand um, and does it also fit with the sustainability criteria that we are expecting in that region? And so where is that SAF most likely to go to? What are the main pulling factors for that SAF?
Speaker 2:And then we see clearly that the regions with demand incentives, like the US, like the EU and UK, have the largest pulling force basically for SAF and can be pretty certain that those mandates will be met. The US is a very interesting situation because they have announced an aspirational target and so the demand for that three billion gallons that they've announced is much less guaranteed and so has to be supported by a wide variety of other incentives, like the low carbon fuel standard, like the rings from the renewable fuel standard and the tax credits, and so. So how much staff will end up being blended there is also dependent on the voluntary market and how many airlines say, well, we're willing to pay for that and pay for the difference that's remaining after subtracting all these, all these incentives.
Speaker 1:Um, so yeah, I agree that that's a very interesting insight and we hope to make that more insightful as more policy crystallises in the coming years. Do you think, as the policy establishes itself, you're going to see a more and more complicated sub-level of trading system within SAF where you see countries with similar sustainability criterias or policy outlooks will be sort of drawn together and then those with aligning sustainability criteria will start trading with each other that way? Do you see that sort of sub-level of trade becoming more and more nuanced as you get more policy certainty from different countries?
Speaker 2:as you get more policy certainty from different countries.
Speaker 2:Yeah, I think we will see that sort of layering of markets, because today it's really just, you know, whoever has SAF you know can sell it.
Speaker 2:And I think going forward you'll have different layers of sustainability criteria as well, like is it SAF made from yucca tallow or is it SAF made from vegetable oils and then going forward, it south made from uh from from from vegetable oils, and then going forward we'll also have staff you know that made from advanced feedstocks, like like forestry residues or ag residues, and then the next generation is again those, those esaps, and so there's different layers and also different markets.
Speaker 2:I think for that, because they're also different price levels. So it's not, it's not fair for them to compete with each other. They'll need to be used for compliance against different incentives or demand from different policy jurisdictions. So I definitely see that that will get more complex and it will also be interesting how indexes, for example, will respond to that and how liquid that market will be going forward and if it's going to be the same as fossil kerosene in terms of liquidity or whether it's still going to be these one-off deals that need to be made more on an off-take basis so another interesting diagram that you added this year that wasn't in last year is you did a um comparison of predicted ramp up of safF production and you did it from 2022, 2023, 2024.
Speaker 1:As I said earlier, if you want to have a look at these diagrams, check them out because they are very interesting. But there is the trend that overall production output does increase across the three years, but the trend is that the actual ramp up happens is being delayed because it's been delayed consistently over those three years. I'm just curious about what you think in terms of the reasons for that. Is it a trend that's going to continue or do you? So? When you get to writing next year's report, are we going to see another delay? Do you think in terms of when the ramp up begins, or are you quite optimistic that we're actually going to see the ramp up as predicted and because we've got this policy certainty?
Speaker 2:we've already discussed yeah, we're really happy with this insight because it's indeed the result of doing this analysis year on year, and it's interesting because we've published this report, of course, um, now two days ago and, um, I think you know the already in May we've seen, because the cut-off date for many of these facilities that we included was was the first of May, but already in May there were additional delays in some facilities which will impact the 2024 capacity. That's going to be probably in next year's report, and so I think the reasons for for these delays are are many, right, but we see a couple main main reasons, um, first of them being projects that are waiting, either like full full policy certainty or or sufficient policy certainty to progress with their plans. So, if you're seeing potentially, this market outlook and you see, well, actually, the 2025 mandates for the UK and for the EU, there's already sufficient capacity probably out there to be supplying those mandates. Yeah, there's a little less incentive to be able to make sure that you have your facility online before 2025. Right, so that could lead to to some delays. Uh, we also see that, specifically in the uk, many projects have been awaiting policy certainty. Of course, the final details on the mandate were only out in in april. So, um, yeah, that does let some projects to wait for more, for more certainty there as well, and so we expect, in the UK, many projects to now have the certainty they need to progress, and which will probably lead to next year's outlook also including some more of those UK facilities.
Speaker 2:I think a second reason is financing challenges. So investors need to have sufficiently de-risked projects, and that's also, of course, inextricably linked with that policy certainty. But there's other reasons for being able to have financing challenges. Right, if you're not able to have an EPC wrap right, that's also leading to more operational risk, and so these kind of financing challenges can occur as well. And then we also see difficulties in actually the ramping up stage, which can also take one or two years. Right, you have to test your facility, and if difficulties come up, that can also lead to delays. And so these three delays, I think, are key to why we see that curve being pushed back and then 2030 volumes being increased, and I think we'll see a continuing trend for that to happen.
Speaker 1:It's interesting when you talk about the UK that it's got policy certainty but the policy that's been outlined hasn't actually been ratified yet. It's not passed through Parliament because we have this well-timed election that's coming around the corner, meaning that there could actually be further delays because this policy needs to go in front of parliament, get passed in order for it to be actually enacted into law. So that could actually see further delays for uk-based projects, because you might not. There is a scenario where the mandate does not get put in place for the start of 2025 if we have a new government set in and they've got other other priorities or they want to restructure it because they weren't engaged in actually setting that before. So that's a very big sort of risk that could actually see more delays come along the line. So you know, getting policy in place is great, but actually getting it finalized and, as we were saying earlier about getting it into this more regulatory framework, is the real point at which you start seeing the benefits of having this policy put in place.
Speaker 2:That's a great point, because if you sort of imagine yourself being on the other side as an investor, you would want to be absolutely certain that this policy is going to be implemented, and those final details are as they say they are are as they say they are. Plus, there's also another revenue certainty mechanism forthcoming in the UK which is supposed to provide an additional layer of certainty that many of these projects will need.
Speaker 1:So I think we'll have to wait for a couple more months to get that required policy certainty if we're lucky, right, yeah, yeah, I mean, and that wouldn't even come in place until the end of 2026, even if it was put in place at the predicted speed. So there's so much up in the air. But the thing you talk about with investors is the same thing in america, you, you look at investors and they go, oh, what's going to happen after the election? Even though this tax credits are in place till 2027, they are scheduled to change to the producer's credit at the end of 2024. They are still being hesitant because they don't know what's going to happen come november and their election. So these things, these politic, political questions, and this is not a politics podcast.
Speaker 1:So, if you want political country, they do they do have important knock-on effects in terms of actually getting these projects online and getting the investment to get to FID and actually get to these production stages.
Speaker 2:Yeah, and I think we always have a lot to complain and a lot to improve when it comes to the EU mandates and the EU structures, but we are actually incredibly grateful and I think the entire sector is incredibly grateful for having such a long-term investment framework in place, where there's actually very little risk that policies will be dialed down, and so I think we can only be happy that that's the case in the EU and that provides certainty for the whole market right, because the SAF that's going to be needed in the EU is not going to come only from the eu, it's going to come from other regions as well.
Speaker 1:so, um, let's try to sort of replicate, uh, that kind of the kind of certainty in other regions as well so, finally, we talk about regions and certainties and mandates, because one country I didn't think I'd hear that there would be a mandate for was china. A mandate for was China, and you say that there's discussions going on about China potentially imposing a mandate for SAF production. I mean, I'm not sure what the timeline or if there is a timeline for that, but obviously a lot of used cooking oil that gets imported to Europe across the world does come from China and obviously, if there is a mandate that's implemented in China, a large proportion of that feedstock that is currently exported will then be used in China for SAF production because they want to move up the value chain and get into the producing, the value chain and get into the producing.
Speaker 2:so I mean, what's one of the murmurings about the staff mandate in china and what impacts do you think this will have sort of globally going around, because they could be quite significant yeah, this for me, was also a really interesting insight from the report, and it really just comes from an article written by Reuters that interviewed industry players in China, and they mentioned that they are preparing for a two to five percent SAF mandate in China. China is, of course, a huge country, but their aviation market is still, and I would say, on the same level as the European Union. So that means that a five percent mandate would equal about two and a half million tons of staff um, and so that could have major implications, of course, for for how feedstock, but also staff, is being being allocated across across the globe. So, um, we're seeing already quite a lot of production capacity coming online in China, also pretty fast, so, so, when we looked at the announcements in 2021 22, those facilities were announced and now they're they're being ramped up um, and so I think that market can move really fast.
Speaker 2:Um, and I think you know, one of the biggest resources they have at the moment um is in the their yuko potential. I think that the average density of yuko availability in China is much, much higher than in the US and in the EU, I think also due to the nature of how gastronomy works in China, and I think that could have big implications specifically for the EU, which is so much dependent on this waste-based feedstock. I believe a couple of years ago, when we did this analysis, two thirds of all the UCO that was being used came from Southeast Asia, and so that could really shake up things, but it could also mean it could also have positive developments. It could be one of the much needed pushes to actually transition to those next generation feedstocks relying on agricultural forestry residues, municipal solid waste. I think that could really provide a push for those kind of pathways and be much less dependent on imports for our SAF needs.
Speaker 1:I think there's a general consensus as well that the industry can't rely on UK or the heifer pathway, obviously in the UK provides mandate there's a cap on heifer production and that we are going to have to look at these other pathways, more advanced pathways, the Alcott's jet, the Fisher TROPS, the, the ESAF, the PTL pathways. So potentially with Chinese mandates coming in, there being a lack of available of the UK coming from that region, then that could lead to an acceleration in these other pathways getting further down the timeline, as it were.
Speaker 2:Yeah, yeah, I think I think so too. But I think what would, what would help the most to truly trigger those those pathways, is really putting in place these sub-mandates. Because even if the SAF cannot come from China or the EUCO cannot come from China, there will still be a huge incentive in the EU mandate to bring in the cheapest feedstocks possible. And so if it doesn't come from China, well then it will probably divert EUCO away from other end uses in the use for biodiesel in South America, in North America. It will basically pull in every drop of EUCO that can be that's available, and I think that's not a desirable effect, right?
Speaker 1:So I think having sub mandates that create a level playing field for these kind of this category of fuels is ultimately the best thing you can do to trigger demand for those for those fuels. So, moving to the very end of the report, there's quite a stark punchy ending in that you go through sort of they're needing to be annual capex expenditures of 40 billion USD between 2025 and 2050 to get 500, between 500 and 800 facilities up and producing, which totals a really nice hefty round number of 1 trillion US dollars, which I don't know whether you just chose that because it's just a nice round, scary sounding number, because if you did, it worked. But what do you think around investor or lender appetites in terms of actually reaching this level of investment? Because certainly, from our perspective, it's just there is not enough capital going around to actually get these projects done. There's so many projects, as you say, looking to get to FID, that haven't got there yet. There is a big challenge there to actually get to these investment numbers.
Speaker 2:Well, I have to admit, and I have to say I think, if you look at the number right, so the one trillion, that looks kind of paralyzing, right, it looks inachievable. But if you look at how much capex is going into upstream oil and gas today, um, actually this, this one trillion, and so this 40 billion that we talk about on an annual basis represents well under 10 percent of annual upstream oil and gas investments today. And so we think it's it's all about directing the flow of money to where, to where it needs to go, and we think there's enough investor and lender appetite to actually achieve it. I don't think funds are the bottleneck here. It's more about risk profiles, and investors are really looking for sufficiently de-risked projects that can achieve good returns. So I think the bottleneck is really not the funds. It's about de-risking the projects to the level that is acceptable.
Speaker 2:And so without, I think, government support, scaling some of these pathways won't be feasible at the required pace.
Speaker 2:Because it's really also about the pace, and we developed at Sky Energy this capacity growth model showing how fast this could go with all the right actions, with all the right binary conditions.
Speaker 2:And so what we took is we took these maximum growth rates from corn, ethanol and biodiesel in the 2000s, which had really big policy support at the time, and also appreciating that these are much less complex facilities.
Speaker 2:And then we arrive at this capacity growth curve where the amount of SAF produced by 2050 is actually not even sufficient to meet the net zero goals stated by IATA. And I have to say that what we didn't include in that assessment is the impact SAF prices would have on aviation demand. Personally, I think the SAF prices that we'll see by the time will be relying on pathways that are a bit more expensive right than the half a pathway, and so that will have an impact on aviation demand, um and so, if you take that into account, I think the staff capacity that we can achieve will be much closer to what the actual demand will be, um and so that that, in my view, does make it more realistic that we will achieve it. But nevertheless, the challenge is enormous, and it's going to be a challenge where airlines, investors, project developers, governments have to sit around the table, iron out the risks and make sure that these projects become financeable for the investors in the private sector to actually come in.
Speaker 1:It's actually. It just strikes me as a prime catch-22, because, in order to get technologies de-risks, you need projects up and running, in which case you need financing, but you're not going to get financing unless you've got these projects de-risked. So you've got this loop that you get around, and the only way to break it is the, the policy frameworks that are being put in place, as well as the the small other bits that need to be put in place in terms of the demand signals as well. So it's a it's a very difficult challenge, and you, I think it's absolutely right that you point that out, but and the pace is going to be critical as well you're totally right, and I think I think every sector, every, every technology needs a different mix of instruments to be able to to de-risk, right.
Speaker 2:we? We were very successful with renewable energy, with offshore wind, but this is a whole nother. A whole nother game, right. So if you look at the capex needs for one facility, it easily exceeds one one billion US dollars or euros whatever currency you like to use and I think that requires a lot of debt. So a lot of these projects are predominantly relying on debt and so that cost of debt is a big chunk of your project cost, and so having an attractive interest rate, like a low interest loan from a government, could actually make a huge difference, a larger difference actually, than getting a grant of 20 million or 50 million. To be honest, that's kind of like change on the scale of such a huge project. So really sort of having a new, fresh perspective at which instruments are needed, I think would be a great way forward.
Speaker 1:So I'm going to slightly change tack now and get you to give you some sort of some of your feedback and opinions from actually writing and working on the report. So which bit of the report surprised you the most when you were coming to writing it and you wrote it and thought, wow, that's.
Speaker 2:That's actually not what I expected I think I think looking at and this is the the first time that we actually zoomed in on on really the feedstock portfolios of all these projects, when looking at it, I was I was honestly quite surprised that the majority of the south projects out there, of the south capacity out there, surprised that the majority of the south projects out there, of the south capacity out there, is actually relying on, uh, agricultural feedstocks to achieve, to achieve their plans.
Speaker 2:Um and so yeah, from a sustainability point of view, I think you know, especially with an eye on achieving net zero, we're going to need to do better and achieve greenhouse gas reductions in in the order of like 80 9090 percent, because you know we have to look at the cost per ton of co2 avoided as well, and so, for the cost efficiency of the whole transition, we think that's also a very important metric to be looking at, and so that actually really surprised me and was a much larger percentage than I had thought and, yeah, I definitely hope that with right incentives, we can valorize more of these, these waste feed stocks, to make sure that that's a bigger portion of the total, the total pool, and what regions are you most excited about excluding the eu and the us?
Speaker 1:what sort of the emerging markets that you've that you thought, okay, there's interesting stuff going on here yeah, I personally believe asia pacific holds a lot of promise right there.
Speaker 2:There's so much refining capacity out there already, like more for the fossil fossil feedstocks, and it's also the fastest growing aviation market in the world, so I think the driver to substitute fossil with jets should be should be quite large. Um, also, the insight that I gave earlier that the period between announcing a project and getting it aligned is so much faster than in other parts of the world Could be because also in Europe or in the US we announced a project way earlier, also for market and financing reasons. But I think that that market could grow really fast and I'm really excited. I think that that market could, could, could grow really fast. Um, and I'm really excited to see, uh, how that market will look in our, in our next year's South market outlook.
Speaker 1:It's also not a bad place to go on holiday, so you can go on holiday and check up on how things are going. Exactly, exactly, um. What region do you think is under engaged you?
Speaker 2:do do you think is under engaged? Do you think? I'd want to hear more from this region? Yeah, I think the one that was painfully absent in this year's outlook was definitely Africa. So unfortunately, we see little happening there, aside from some activity in Egypt and South Africa, despite the huge potential. Right, there's a lot of waste feed waste that can be utilized there, also huge potential to develop liquid.
Speaker 2:There are many regions there with with excellent renewable energy profiles, but what's unfortunately difficult is is is is to develop a facility that is fully for an export market, right. So so some form of local, regional SA demand in africa would be very much, very much welcomed, um, because that means that you have actually two markets and to supply your product into. Um, and so I would definitely hope that we can also de-risk more of these, these projects, because often lenders or investors will also see a bit more risk in in these regions, uh, so the cost of capital is is a bit higher, um, so hopefully we can work on the risking that, potentially also with the help of multinational instruments like from the World Bank, for example.
Speaker 1:I mean for me. I think Antarctica is criminally underrepresented in your report. So I think that yeah, yeah, yeah.
Speaker 2:Definitely look out for for next year's island, because I heard there's a lot going on there. You'll be surprised.
Speaker 1:Yeah, there'll be some interesting things in the 2025 report coming from Africa and Antarctica. So, on that, what do you think, sort of a broad brushstroke overview, will be the sort of headlines of the 2025 market outlook? If you would sort of look into your crystal ball, what's going to be in that one?
Speaker 2:Yeah, I think next year will be maybe even more interesting than this year's one, because we'll continue to see the output increase a little bit, I think, and 2025 demands will align a bit more with supply to create a balanced supply situation.
Speaker 2:And I'm quite confident as well that many of the proposals around mandates and SAF incentive that we described in the report will have progressed so they can hopefully provide more confidence to those projects that we're seeing. But there's very little room anymore for a project to announce in 2025 and come alive before 2030. So we'll have quite a good view as to how much SAF will be having in 2030 and then how big the challenge will be to get to 2035, the next milestone around the corner. So, specifically for the EU, we see that the tripling of SAF demand will be required in 2035 compared to 2030. And so that next challenge that's going to be ahead. I think that will also be the next focus of next year's report how, how do we triple that right from 2030 to 2035? Um, I think that that will be a really interesting insight, so so look out for that one.
Speaker 1:Well, I can't wait to see what the report says next year and everyone can read the report. See what the report says next year. And everyone can read the report on the Sky Energy website. You can get it in the description below. I will put it in here. It's definitely definitely worth a read and, tom, thanks so much for coming and joining us and walking us through what's in the report and the process that you go through to actually put it all together, because it's no, you go through to actually put it all together because it's it's no small undertaking. I was, I was speaking to someone and it's a great sort of nine months work and a lot, a lot of work goes into it. So, um, yeah, thank you for taking your time to come and explain it. Yeah, I appreciate the kind words.
Speaker 2:It was my pleasure and uh looking forward to to repeat this conversation next year, hopefully, yeah, looking forward to it too.