Arthur Deakin
Energy Practice Director
Americas Market Intelligence
There is only one real solution to decarbonize the aviation sector today and it is known in the industry as SAF, or Sustainable Aviation Fuel. It is a drop in fuel, which means it can be used in existing engines without any modifications. This fuel has been used in more than 450,000 commercial flights and can reduce carbon emissions by up to 80% compared to conventional jet fuel.
Currently, aviation accounts for 2.5% of global greenhouse gas emissions and airlines consume 360 billion liters of fuel per year. In 2022, the total fuel bill stood at $221 billion, accounting for nearly 30% of the aviation sector’s operating costs. Like many other sectors, aviation has committed to reducing its net emissions to zero by 2050, but it has few real options to start decarbonizing now.
Because of the weight of batteries, electric planes are only a reality for short-haul flights. The other option, hydrogen, is lighter than batteries, but its low density means that 30 to 50% of the aircraft’s space is needed to store liquefied hydrogen. The most advanced commercial hydrogen aircraft, which is being developed by Boeing, will only be ready in 2035. The only real solution to decarbonize the aviation sector now is SAF (Sustainable Aviation Fuel).
Based on their feedstock availability and location, Mexico, Brazil, Colombia, Paraguay, and Argentina are best positioned in the region to take advantage of this opportunity.
To put the opportunity of this fuel in context, it is important to look at numbers. 300 million liters of SAF were produced in 2022, equivalent to less than 1% of total jet fuel consumption. By 2030, to stay on the path to net zero, 23 billion liters of SAF will need to be produced. And by 2050, that 23 billion will have to grow to 449 billion liters, 1,500 times today’s production. This is an astronomical figure.
However, there are two main problems affecting SAF today. First, its cost: it is still two to three times more expensive to produce than conventional jet fuel. As global production increases, technological and commercial efficiencies are expected to bring that cost down. Secondly, as SAF is usually produced from biomass, such as soybean oil and animal fats, the available feedstock is limited. The world’s leading producers are concerned with this shortfall, propelling them to explore new feedstocks, pathways, and regions to satisfy the growing demand for their product. Latin America, and Mexico more specifically because of its location, has an important role to play in the supply of feedstocks and the export of these fuels globally. In fact, AMI analysis shows that Latin America could produce 10% of the world’s demand for SAF by 2030.
Based on their feedstock availability and location, Mexico, Brazil, Colombia, Paraguay, and Argentina are best positioned in the region to take advantage of this opportunity. Leading producers of these alternative fuels, ranging from BP to Neste, know they need to diversify their feedstock supply to ensure constant production in the face of exponential demand. Places that are close to their refineries and have an abundant supply of waste feedstock, such as Mexico, will fare best.
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Although the global trend is to move away from using feedstocks that compete with the food or animal feed industry, including virgin oils such as soybean oil, in the short term, these feedstocks will continue to produce the bulk of biofuels. The exception to this will be in Europe, where biofuels originating from food and feed-based crops have limits that are set to increase, accelerating the trend towards waste and residue feedstocks. Used cooking oil, which is what is left over after cooking, is a highly demanded waste feedstock and a great opportunity in the Mexican market.
The collection of used cooking oil, known as UCO, is still in its early stages in Mexico. In most cities in the country, there are a few small entrepreneurs who send trucks to collect UCO from restaurants and hotels. But the reality is that this is still an underdeveloped market. In Mexican cities with more than 100,000 inhabitants, of which there are more than 100, it is estimated that companies can obtain up to 360 million liters of used cooking oil. This could contribute to a significant amount of SAF production.
AMI analysis shows that Latin America could produce 10% of the world’s demand for SAF by 2030.
There is one specific feedstock that has caught the industries’ attention because of its characteristics: Carinata oil. It is a non-edible plant, so it does not compete with the food industry. Not only can Carinata oil be used for biofuels such as SAF, but also, after crushing the seed, the leftover residue can be used for animal feed. This plant is still in its early stages in Latin America and is currently only cultivated in Argentina. However, its production is set to expand rapidly. Ideal growth happens in temperate climate conditions with ambient humidity, at temperatures between 14 and 22 degrees Celsius, similar to where Canola seeds are grown. In Mexico, this includes Tamaulipas, Tlaxcala, Estado de México and Zacatecas. Carinata is also a rotational crop, grown in the winter, which has proven to improve the oxygenation of the soil and help fight pests so that the main crop can experience a better yield.
Fuel producers, industrial companies, or even service providers looking to decarbonize their value chain have an exciting opportunity in front of them. Securing these supplies of raw materials is the first step forward.
Whether it is helping companies secure a long-term feedstock supply for renewable fuels, finding the optimal location for a SAF production plant, or conducting competitive intelligence on industry leaders, AMI has over 20 years’ experience in Latin America’s energy sector. AMI has a proven track record of helping both multinationals and investors understand the changing market dynamics to ensure a successful low-carbon strategy in the region.
