The ongoing conflict in Iran has led to a dramatic surge in jet fuel prices, nearly doubling the cost and placing immense financial strain on airlines globally. With the situation raising questions about energy security and sustainability, experts are advocating for a shift towards alternative fuels, such as sustainable aviation fuel (SAF) derived from used cooking oil and agricultural waste. However, as the crisis unfolds, the aviation industry faces significant challenges in scaling up production and ensuring supply.
Jet Fuel Prices Reach Historic Highs
Since the onset of hostilities in Iran, initiated by US-Israeli airstrikes in late February, the aviation sector has experienced widespread disruptions. Reports indicate that over 50,000 flights have been grounded, while jet fuel prices have soared to an average of $181 per barrel globally—an increase that has left many airlines grappling with soaring operational costs. Notably, European jet fuel inventories have plummeted by 50%, prompting warnings from Goldman Sachs that stocks may soon fall below the International Energy Agency’s (IEA) critical threshold of 23 days’ supply. The UK, in particular, has been identified as the nation most at risk.
Major airlines are not immune to these challenges. Lufthansa has already announced the cancellation of 20,000 flights through October, while Spirit Airlines has declared bankruptcy following the collapse of a government bailout. American Airlines anticipates an additional $4 billion in fuel costs this year, with Delta Airlines projecting a $2 billion increase in the second quarter alone.
The Call for Sustainable Aviation Fuel
In light of escalating fuel prices, the aviation industry is once again turning its attention to sustainable alternatives. One promising contender is sustainable aviation fuel (SAF), which is produced from feedstocks such as used cooking oil, agricultural residues, and captured carbon. Currently, however, SAF accounts for a mere 0.7% of global kerosene consumption, with around two million tonnes produced last year. The IEA’s net zero scenario requires an ambitious ramp-up to at least 250 million tonnes annually by 2050, with some experts suggesting targets as high as 500 million tonnes.
The most readily available source of SAF remains used cooking oil. Despite its potential, the global supply is finite, with estimates suggesting a maximum availability of around 20 million tonnes. “While it’s difficult to assess exactly how much could be available, that’s a small fraction of what we need by 2050,” explains Frédérique Rigal, co-author of a recent study on aviation decarbonisation. The next generation of SAF, derived from woody waste and fermented alcohol, presents a more scalable option but has yet to be deployed commercially at significant volume.
Short-Term Solutions and Long-Term Challenges
In response to the immediate fuel crisis, airlines have primarily turned to traditional sources. US refiners have ramped up production, with jet fuel exports to Europe surging by over 400% to 94,000 barrels per day in April compared to February. The European Commission has initiated a programme called AccelerateEU, aimed at optimising jet fuel distribution among EU member states. However, experts caution that supply chain bottlenecks are likely to persist for months, even if a peace agreement is reached.
As the crisis continues, the conversation surrounding SAF is evolving. Mahesh Roy, programme director for SAF at the Green Finance Institute, highlights that the current situation has shifted the narrative from solely focusing on climate sustainability to encompassing energy security and cost efficiency. “The energy trilemma—security, sustainability, and affordability—has taken on new meaning in light of rising prices and geopolitical tensions,” Roy states.
The Need for Commitment and Investment
For SAF to become a viable alternative, airlines must commit to purchasing it in advance, a step that many have been slow to take. Current regulations in the EU and UK mandate increasing SAF blending quotas, with targets starting at 1.2% by 2030. Nevertheless, airlines argue that these targets should be delayed due to insufficient supply. In contrast, SAF producers assert that numerous projects are underway, with many nearing final investment decisions.
The investment required to close the SAF supply gap is staggering. Estimates indicate that cumulative capital expenditure for new renewable fuel plants could range between $4.2 trillion and $8.1 trillion from 2020 to 2050, depending on SAF yield assumptions. This figure is comparable to the total global oil and gas capital expenditure between 2014 and 2021.
Why it Matters
The urgency to transition towards sustainable aviation fuels has never been clearer. The current crisis not only highlights the vulnerabilities of the aviation sector but also serves as a wake-up call for a more resilient and environmentally friendly approach to fuel sourcing. As the industry grapples with soaring costs and supply chain disruptions, the shift towards SAF could offer a path not just for meeting climate goals, but also for enhancing energy security in a world increasingly defined by geopolitical uncertainties. The implications of these decisions will resonate throughout the aviation landscape, shaping the future of air travel for years to come.
