The ongoing conflict in Iran has led to a dramatic surge in jet fuel prices, reaching levels unseen in years and placing immense pressure on the aviation industry. As costs soar, airlines are being urged to consider sustainable aviation fuel (SAF) made from used cooking oil and other renewable sources. However, experts warn that the transition to these greener alternatives is fraught with challenges and may take years to implement effectively.
A Crisis in the Skies
Since the onset of hostilities in late February, the aviation sector has experienced significant disruptions, with tens of thousands of flights grounded. The conflict has caused a staggering 50 per cent drop in Europe’s jet fuel inventories, and Goldman Sachs recently cautioned that supplies could dip below the critical 23-day threshold set by the International Energy Agency (IEA) by June. The UK is particularly at risk, facing a potential fuel crisis that could have widespread implications for air travel.
Jet fuel prices have skyrocketed to an average of $181 per barrel globally—approximately double the rate seen before the conflict began. This financial strain has already led to significant operational changes for numerous airlines. Lufthansa has announced the cancellation of 20,000 flights through October, while Spirit Airlines has collapsed after a government bailout failed to materialise. American Airlines is bracing for an additional $4 billion in fuel costs this year, and Delta Airlines anticipates a $2 billion increase in the second quarter alone.
The Search for Sustainable Solutions
Amidst these challenges, the aviation industry is rekindling its interest in sustainable aviation fuel, typically derived from used cooking oil, agricultural waste, and carbon captured from the atmosphere. Currently, SAF accounts for a mere 0.7 per cent of global jet fuel consumption, according to the International Air Transport Association, with only two million tonnes produced last year. The IEA estimates that the industry will need to ramp up production to at least 250 million tonnes annually by 2050, with some experts suggesting that a target closer to 500 million tonnes is required.
The primary feedstock for SAF remains used cooking oil, which, while an appealing option, has limited availability. Frédérique Rigal, a co-author of a recent study on aviation decarbonisation, noted that the global supply of waste cooking oil is capped at around 20 million tonnes. This amount falls well short of the requirements needed for the ambitious targets set for 2050.
Next-generation SAF, made from woody waste and agricultural residues, shows promise but is not yet widely available. Rigal highlights several “hard limitations” in scaling up SAF production, including the need for significant land use and the fact that many existing producers are focused on fuel for road vehicles rather than planes. The most pressing issue, however, is the lack of commitment from airlines to purchase SAF in advance, stalling the development of these projects.
Conventional Responses to a Modern Crisis
In the short term, airlines have turned back to traditional fuel sources to address the immediate shortage. US refiners have ramped up production, sending jet fuel exports to Europe soaring by over 400 per cent in April compared to February, according to Kpler data. Meanwhile, the European Commission has initiated a programme named AccelerateEU to optimise the distribution of jet fuel among EU member states.
Despite these efforts, analysts warn that supply chain bottlenecks are likely to endure for months, even if a peace agreement is reached. The crisis has also had a knock-on effect in other regions. For instance, South Korea, which supplies more than 80 per cent of jet fuel imports to the US West Coast, is facing supply threats due to reduced crude output from the Middle East.
An emerging alternative known as electro-SAF offers potential benefits as it combines captured carbon with hydrogen generated from green electricity. Although there is no theoretical limit to how much electro-SAF can be produced, Rigal cautions that its development is hampered by a lack of investment and industrial capacity.
The Broader Implications of Rising Costs
As European airlines grapple with soaring operational costs, the financial burden has intensified. Ryanair, for example, is expected to see a 38 per cent increase in unit operating costs attributed to environmental policies by 2035, which could push its margins into negative territory. Airlines may be forced to pass these costs onto passengers, reduce capacity, or alter long-haul routes, potentially exacerbating emissions due to longer flight distances.
The scale of investment needed to bridge the supply gap for sustainable fuels is staggering. The ATAG Waypoint 2050 report estimates that cumulative capital expenditure for new renewable fuel plants from 2020 to 2050 could range between $4.2 trillion and $8.1 trillion, depending on SAF yield assumptions. For context, total global oil and gas capital expenditures from 2014 to 2021 were also $4.2 trillion.
Experts suggest that while these long-term projects are essential, they cannot address the immediate crisis. Mahesh Roy, programme director for SAF at the Green Finance Institute, believes that current discussions around SAF have shifted. Once viewed primarily through the lens of climate change, these conversations are now increasingly framed by energy security concerns, particularly in light of the geopolitical tensions in the Middle East.
Why it Matters
The escalating costs of jet fuel and the urgent need for sustainable alternatives are not just environmental issues; they represent a critical challenge for the future of global air travel. As airlines face mounting financial pressures and stricter environmental regulations, the push for SAF is becoming more urgent. The current crisis serves as a stark reminder that transitioning to greener technologies is not solely about tackling climate change—it is also about ensuring energy security and economic stability. The decisions made today will shape the aviation landscape for years to come, underscoring the imperative to invest in sustainable solutions before the next crisis hits.