British multinational oil and gas company bp is set to invest US48.54M (CNY 353M) in acquiring a 15% stake in Chinese renewable diesel and sustainable aviation fuel (SAF) producer Lianyungang Jiaao New Energy, according to a S&P Global report.
Lianyungang Jiaao New Energy is owned by Zhejiang-based Jiaao Enprotech, which has a 100,000 tonnes/year SAF capacity, according to the 10 July report.
The deal came against a backdrop of market speculation that China was set to announce SAF mandates, the report said.
In July 2023, China’s Civil Aviation Administration drafted a fuel standard to ensure the viability of alternative fuels in the aviation sector, S&P Global wrote.
According to a market source quoted in the report, the SAF industry is complex and requires significant funding with producers needing to plan for a potential used cooking oil (UCO) feedstock supply shortage.
“It makes sense for state-owned and leading companies to take on SAF projects, given the high costs and intricate nature of the industry,” the source added.
Some industry participants are working on co-locating, converting and integrating their facilities to enter the SAF industry, according to another market source.
“I think some industry players are anticipating that the Chinese government will release SAF mandates, so most of them are getting themselves prepared,” the market source added.
Against this backdrop, global SAF consumption in 2023 totalled 450,000-500,000 tonnes, double the previous year’s volume, according to International Air Transport Association (IATA) data.
However, SAF accounted for only 0.1% of total jet fuel consumption.
Global SAF consumption is projected to reach 2.1M barrels/day (bpd) by 2050, replacing almost 24% of global jet fuel demand.
In 2023, global SAF production was approximately 2.24M tonnes (48,500 bpd), with China contributing 298,000 tonnes (6,500 bpd), according to S&P Global Commodity Insights reports and data from August-September 2023.
Meanwhile, policy initiatives around the world are expected to drive a significant increase in SAF demand, according to the report.
Depending on policy support for investments, SAF projects could reach 600,000 bpd by 2030, S&P Global wrote.
Europe’s ReFuelEU aviation initiative targets a 6% SAF blend by 2030, while the UK and Japan are planning to introduce a 10% SAF target by 2030, according to the report.
With other countries also considering new SAF policies, demand projections could be given a further boost, the report said.
Despite its latest investment, bp has been scaling back plans for new SAF and renewable diesel projects at existing sites, pausing two projects, including a standalone biofuels unit at its Lingen refinery in Germany, while continuing to assess three others, S&P Global wrote.
The company is proceeding with standalone biofuels projects in Australia (Kwinana), Spain (Castellon) and the Netherlands (Rotterdam), according to the report.
