NESTE – NOT EVEN THE PIONEER IN SAF AND RENEWABLE DIESEL HAS AN EASY LIFE

The Finnish oil company NESTE is perhaps the great pioneer and main global supplier of renewable diesel and SAF, resulting from the combined hydrotreatment of used vegetable oil and animal fats with petroleum streams in the jet fuel and diesel alkanes’ range. News by Quantum Commodity Intelligence published on April 24, 2024, reported that NESTE’s shares are at their lowest value since the emergence of Covid in early 2020 due to the low margins of renewable sustainable products. This is not surprising and is a warning, particularly for companies that are planning to enter the SAF market. Although BioJet-to-Jet mixing mandates are already being published in several countries, achieving them will be a different story because from theory to the real world the distance can be surprising. The supply of approved feedstocks, mostly biowaste at very low cost at the factory gate, combined with the cost of the chemical processing are the biggest challenges. How this will evolve over the next five to ten years is a huge unknown because the airline sector will hardly accept SAF prices more than 10% to 20% above the fossil jet tariffs in the 2030s. To replace 2% of the annual consumption of the fleet of a company a 10% penalty is fine since the 10% premium becomes an increase of just 0.2% in the global annual bill. But to replace 50% with SAF, the company’s burden will already be 5% on the fuel bill. But to put things in perspective, currently the SAF premium over its fossil version is not 10%, it is more likely between 250% and 300%. We will see at what level SAF’s price will stabilize compared to its petroleum cousin and how the air travel sector will react to this new unavoidable reality.