In this podcast, Kyle Mowery discusses sustainable air fuel (SAF) and its potential to decarbonize air travel. The chapter explores the significance of hefa as a feedstock for renewable diesel and compares different approaches to SAF production. They also discuss the challenges and risks of SAF production, and the relevance of REANs to different industries. They touch on shorting meme stocks, the significance of regional businesses, Portillos and Potbelly, and more.
Sustainable air fuel (SAF) is the only known way to decarbonize air travel, with a potential shortage in the near term.
Government policies and corporate demand are driving the transition to SAF, despite its higher cost compared to traditional jet fuel.
The production of SAF relies on various feedstocks, with challenges in feedstock availability and technical/economic aspects.
Deep dives
Sustainable Air Fuel: A Primer
This podcast episode provides a primer on sustainable air fuel (SAF). SAF is a drop-in fuel designed to replace traditional jet fuel in the aviation industry. It can be produced through various methods, such as hydroprocessed esters and fatty acids (HEFA) and alcohol to jet fuel. HEFA is currently the largest volume producer of SAF, using feedstocks like used cooking oil and soybean oil. Alcohol to jet fuel shows high volume potential and is expected to play a significant role in meeting future SAF demands. The Biden administration has set targets for SAF production, aiming for three billion gallons by 2030 and 35 billion gallons by 2050. The transition to SAF is driven by environmental goals, with the aviation industry aiming to decarbonize and reduce emissions.
Demand and Government Policies for SAF
The demand for SAF is still nascent, but there are ambitious goals set by governments and industry stakeholders. The Biden administration targets three billion gallons of SAF production by 2030, primarily driven by HEFA and alcohol to jet fuel. The UK and European countries are looking to mandate SAF usage, with goals of 70% SAF penetration by 2050. While government policies play a crucial role in incentivizing SAF production, large corporations like Google and Microsoft are also driving demand as they aim for net-zero emissions. Despite being more expensive, SAF is seen as a vital component in decarbonizing the transportation sector and reducing the aviation industry's carbon footprint.
Feedstocks and Challenges Ahead for SAF
The production of SAF relies on various feedstocks, including used cooking oil, tallow, soybean oil, and corn-based ethanol. While HEFA and alcohol to jet fuel show promise, the industry still faces challenges. Feedstock availability might become a limiting factor for HEFA, as it cannot rely on creating additional waste or residues for production. Alcohol to jet fuel, on the other hand, has significant volume potential and could be driven by players like ADM and Valero looking to decarbonize their ethanol plants. However, commercial-scale production and technology developments are still underway for other feedstock sources like municipal solid waste. Overall, SAF production is set for growth, with increased demand from corporations and governments' environmental targets, but technical and economic challenges remain for certain feedstocks and production methods.
Renewable diesel and its impact on Darling's business
Darling Ingredients, a global rendering business, has seen a transformation in its business thanks to the growth of renewable diesel (RD). RD was initially driven by California's low carbon fuel standards policy in 2011. Valero approached Darling with the idea of utilizing their fats for renewable diesel, which proved to be a successful venture. Darling's joint venture with Valero now produces over 1.2 billion gallons of RD, significantly impacting their business in a positive way.
The potential for sustainable aviation fuel (SAF)
The discussion shifts to the potential of sustainable aviation fuel (SAF). While renewable diesel has already seen significant market maturity, SAF is still in its early stages. Companies like Calumet and Diamond Green estimate a significant EBITDA premium per gallon for SAF compared to renewable diesel. The incentives, including federal and state tax credits, play a crucial role in making SAF economically viable. The margins for SAF are expected to be higher initially, similar to what was seen in renewable diesel in its early years.
Kyle Mowery, Founder and Portfolio Manager at Grizzly Rock Captial, LLC, stops by the Business Brew to teach the audience about sustainable air fuel. Bill deviates the conversation *a bit* to renewable diesel at times, but SAF is the primary topic.
SAF is a potentially interesting investment topic because it is the only known way to decarbonize air travel. Importantly, there appears to be a shortage in the near term.
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