Why airlines are thirsty for biofuels in spite of tumbling oil prices
In the run up to the 2016 Presidential election, biofuels seem to be on the front burner.
Signs of the aviation industry’s growing enthusiasm for biofuels are emerging. FedEx is to buy 3 million gallons of “biojet” a year from Red Rock Biofuels, a Colorado company building a wood-to-fuel processing plant in southern Oregon. After striking a similar deal with Southwest Airlines (NYSE: LUV) last year, Red Rock has now secured buyers for its total production capacity, even before breaking ground at the new plant.
The biojet industry has seen a flurry of activity since Virgin Atlantic (NASDAQ: VA) flew the first biofuel-powered commercial plane in 2008. More than 40 airlines, including major players such as United Airlines (NYSE: UAL), Cathay Pacific (HKG: 0293) and British Airways (LON: IAG), are now experimenting with biofuels, the Natural Resources Defense Council reports, and companies have collectively logged more than 600,000 miles of biofuel-powered flight time, including more than 1,600 commercial passenger flights.
Airlines see biofuels as a means of shielding themselves from oil-sector volatility, and of reining in growing fuel bills that, in spite of recently lowering crude prices, still comprise about a third of airlines’ operating costs, up 13 percent from 2001. More importantly, however, airlines see biofuels as a means to curb their carbon emissions without flying fewer miles — a vital strategic capability for an industry that anticipates both a sharp increase in passenger numbers and the imposition of tough emissions restrictions in coming years. “It’s about retaining, as an industry, our license to grow,” explains Julie Felgar, managing director for environmental strategy at Boeing, which is coordinating an international biofuel research effort.
With corn ethanol unlikely to provide significant enough carbon savings, airlines are looking to purchase advanced biofuels produced from agricultural waste, household leftovers, and other non-food feedstocks. Several major industry groups have already made significant commitments, with the U.S. aviation industry pledging to use 1 billion gallons of biojet per year by 2018, and European airlines committing to use 600 million gallons per year by 2020. The U.S. military is also investing heavily in biojet, with the U.S. Air Force aiming to use alt-fuels for 50 percent of its total consumption by 2025, and an inter-agency defense initiative last year awarding $210 million to Red Rock and two other biofuel companies to promote commercial-scale biofuel production.
The carbon savings that biofuel blending will yield remain subject to debate. The Air Transport Action Group, an industry-backed group, says that biofuels have the potential to reduce the full-lifecycle carbon footprint of aviation fuel by 80 percent. Sustainable Aviation, a British trade group, is more conservative: it envisions only a 60 percent carbon-saving, but projects that biofuels could plausibly make up 40 percent of airlines’ total fuel supply, reducing the industry’s footprint by about a quarter.
The exact savings, however, depend on the feedstocks and land-management strategies used by biofuel producers. A 2010 lifecycle analysis found that well-run biojet projects could reduce carbon emissions by anything from 10 percent to 100 percent, depending on their feedstock, while poorly run projects could produce fuels with a total per-gallon footprint up to eight times greater than that of regular jet fuel.
Biofuel proponents admit that there are plenty of details still to be worked out, and anticipate that airlines will ultimately use a wide range of producers and biofuel feedstocks in order to develop locally appropriate supply chains for their major hubs. For now, though, investors should be happy that airlines are among the corporations putting serious R&D resources behind biofuels, writes energy analyst Justin Loiseau. “While biofuels are still an emerging industry, investors can rest easier knowing that these corporations are making smart strategic moves to keep their stocks strong and steady,” he asserts.
Moving forward, says Red Rock co-founder Terry Kulesa, the key will be to get enough projects off the ground to show biojet’s commercial viability. “If you can get the first project financed, then you have a lot of avenues. The ultimate goal is to get really low-carbon fuel at the end of the day,” he says.
Companies to watch
* United Airlines (NYSE: UAL) this year invested $30 million in Fulcrum BioEnergy, which is working with Waste Management to develop municipal-waste biofuel projects with a potential capacity of 180 million gallons of fuel a year.
* Since 2014, United has also been buying 5 million gallons of fuel a year from AltAir Fuels, a California company producing biojet from beef tallow. The biofuel is intended for use on flights out of United’s LAX hub.
* Solena Fuels, a British municipal-waste processing startup, is working with British Airways to develop a new biofuels plant in the south of England. BA has committed to buy the plant’s total output over the next 11 years, in a contract worth around $550 million at current prices.
* British firm Velocys (LON: VLS), formerly known as Oxford Catalysts, holds several key patents for gas-to-liquids technologies, and is providing the equipment and knowhow for several planned biomass jet-fuel plants in the U.S. and elsewhere.
Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.