SAF Markets will consolidate bankable airline SAF demand into one easy to review and track location making SAF production projects more appetising to financiers.
The airline industry spends over $200 billion dollars on traditional fossil-jet fuel each year. Over coming years this consumption needs to switch to a sustainable renewable alternative. Sustainable Aviation Fuel (SAF) is the standout preferred option. Demand for SAF is clear; leading airlines want SAF for energy security, to reduce carbon liability costs, to enable early mover trial flights, to support marketing activities and are willing to pay above the going rate of traditional jet fuel to secure it. In the longer term, all airlines will inevitably eventually seek a full fuel supply stream conversion to SAF in order to receive a fundamental Airline-Seat-Kilometre cost advantage. This full conversion will occur when SAF meets and exceeds the fossil-jet fuel grid parity price crossover point expected in a carbon constrained world. One of several major barriers currently collaring SAF supply and SAF project deployment, according to the International Energy Agency’s Biofuel Taskforce, are the “difficulties in finding buyers and sellers in the biomass supply chain, as these markets are still very immature”. Sustainable Sky's SAF Markets project will be the solution to this barrier.
SAF Markets will be a not-for-profit initiative designed to accelerate development, commercialisation and evolution of the embryonic Sustainable Aviation Fuel industry by enabling the effective and efficient connection of supply with demand using an innovative web based ‘matchmaking’ platform. SAF Markets will be an easy-to-use matching service where commercial buyers can meet prospective sellers to explore transaction opportunities. This is a concept that was stress tested and unanimously endorsed by the diverse industry stakeholder attendees at the 2011 Creating Climate Wealth Summit. As background, the slowly emerging global SAF market is diverse and fragmented thus is beginning with occasional ad-hoc spot trades facilitated by ‘matchmaking’ through inefficient people-based networks (principally individuals within Boeing, Airbus and CAAFI). The creation of an online SAF marketplace creates efficiency and unlocks speculative opportunity for both the demand-side and the supply-side by formalising expectations and opportunities around supply and demand. An online matchmaking market mechanism is a proven concept that will also attract and multiply investment towards SAF, especially once airlines begin to load their requests for SAF supply proposals onto the platform. SAF Markets will consolidate bankable airline SAF demand into one easy to review and track location. Likely catalysed and propagating from initial end-user airline demand, SAF Markets will provide dealer hubs that cover the entire SAF value chain, from downstream to upstream: airlines to fuel distributors, fuel distributors to fuel refiners, fuel refiners to biomass logisticians, biomass logisticians to biomass consolidators, and ultimately biomass consolidators to biomass producers. Additionally, SAF Markets will provide visibility over investment opportunities for private equity venture capitalists and will provide market visibility for governments who wish to measure policy outcomes.
SAF Markets will literally create the SAF marketplace.
Can it be done? Yes, today there are literally thousands of online match-making organisations that use a similar business model, to name just a few these include; ebay.com, alibaba.com, businessmaking.com.au, freelancer.com and amazon.com.
Has anyone previously tried this approach? A rudimentary and tentative Minimum Viable Product SAF match-making platform was prototyped in 2012 by failed start-up Elsevior TechSelect. It possessed several flaws witnessed and learned from. For example, the organisation asked prospective members to pay an upfront membership cost without those prospects having any clear idea what lay behind the paywall, and it required a complex physical contract signature exchange, hence most prospects were unwilling to pay to signup.
How will it operate practically? In order to strategically position for an early mover and cost competitive advantage airlines will list their speculative future SAF procurement requirements, like their normal jet fuel Request for Proposals (RFP). Airlines that are not subscribed to SAF Markets will miss SAF supply opportunities hence, they will have a strong, and continuing, incentive to subscribe to SAF Markets. This action by the airlines will consolidate and articulate SAF product demand creating bankable numbers for suppliers. Suppliers will then sign up to SAF Markets to competitively offer RFP bids in order to win SAF supply off-take agreements. This in itself will drive market transparency and competition, plus importantly generate the best stable market prices for SAF suppliers rather than the current process of ad-hoc opaque SAF purchase offers that occur at uncertain and volatile prices. As a result it will make business cases much easier for all parties. Once an airline selects an RFP for negotiation they will be ‘blanked’ from seeing new offers until they return and provide a market update of the outcome of their negotiations. This will give airlines an incentive to try to close deals quickly and improve the liquidity of the market.
The process for organisations to initially list on the SAF Markets platform will be free, quick and easy:
Step 1) REGISTER – Organisations self nominate to be involved, register company details including company position in the SAF supply chain, applicable sustainability certifications and prove identity bona fides to prevent false or misleading listings (identity check will involve re-captcha mechanism, credit card details, invoice option, manual identification check by calling company via listed front office number, company emailing address verification)
Step 2) CONNECT – Organisations will list their company’s biofuels/biomass speculative supply and demand needs, await for suitable listings and automated matchmaking
Step 3) TRANSACT – Organisations will receive automated recommendations. They will be asked to review and consider; reach out to make direct connection with preferred companies; conduct specific negotiations, complete the MOU process and contracting securely offline; provide feedback on SAF Markets platform regarding product sale (mass, volume, product specifications and ballpark pricing) to support sustainability traceability plus qualitative and quantitative feedback regarding each others performance against their contract (similar to the ebay post transaction feedback mechanism) to improve market quality and integrity. User organisations will be ‘blanked’ (unable to see new SAF Markets listings) until they provide this market feedback.
How will we build 'sustainability' into SAF markets? The embryonic SAF industry currently remains at risk of being stillborn if it fails to build and maintain its social-licence-to-operate effectively. It needs the strong unwavering support of its advocates, early adopters and champions – these are principally passionate scientists and environmentalists. This market criticality will be overcome by consolidating SAF demand behind a highly reputable sustainability filter - that is all SAF suppliers must nominate which sustainability certification program their product meets when they list on SAF Markets. This will put real positive sustainability pressure upstream along the entire biomass supply chain. On this, SAF Markets will most likely support the SAFUG position; that the sustainability certification scheme operated by the Roundtable of Sustainable Biomaterials (RSB) is currently the best candidate to be the globally harmonised SAF standard. It is also important for SAF and the airline industry to distance itself from unsustainable first-generation (food crops) and second-generation (energy crops grown on land where food could be grown) biofuels in order to build community and government support for SAF.
Who will we partner with to develop this project? Sustainable Sky could seek to work with the Carbon War Room – Renewable Jet Fuel Initiative to develop SAF Markets. Tradeslot or Melbourne based digital marketplace developer Envato could be approached to provide technical advice on this project. It is also in the strategic best interest of the following organisations to be supportive and involved with SAF Markets: • ICAO & IATA - So the global aviation industry can meet its emissions targets • Boeing & Airbus - So that they can sell more aircraft in the long term • All leading airlines - To minimise their carbon liabilities and so that their fellow competitors don’t snap up early mover opportunities.
What are some of the the global benefits of SAF Markets?
• ECONOMIC BENEFITS – Effectively and efficiently matching supply with demand reduces wasted effort, reduces costs and accelerates outcomes such as creating a vast new global industry. Consolidating SAF demand into one central location makes the market more transparent and bankable.
• SOCIAL BENEFITS – Accelerating the maturation of the SAF clean energy industry creates sustainable jobs. SAF is a clean tech industry that is well placed to create jobs in those countries that possess mining, infrastructure and agriculture expertise and are seeking to diversify and modernise their economies. As SAF will reduce the impact of climate change it will also reduce the impact of climate change on the global economy, jobs and social development. It will create a new energy source helping to alleviate energy security threats.
• ENVIRONMENTAL BENEFITS – Accelerate development, commercialisation and evolution of the embryonic Sustainable Aviation Fuel industry that is built with reputable sustainability certification embedded will reduce the impact of climate and natural resource degradation on our environment.
How will Sustainable Sky operate SAF markets in a financially sustainable manner so it doesn't rely on significant ongoing donations and is there an exit strategy from SAF markets once it is built and successful? The aim is to set up and operate SAF Markets on a fee for service basis (free for initial registration), reinvesting all profits towards the growth of SAF Markets and Sustainable Sky. It can be expected that an eventual project buyout offer from mature fuel commodity trading organisations (such as Platts or ICE Markets) will occur when SAF Markets has evolved into a standardised real commodity market and risk is reduced. This may take up to 10 years. If this does occur, the aim is to reinvest all capital raised from this sale into further sustainable aviation activities. Fees will be customised as the market grows, initially price will be set at zero to encourage signups and critical mass. Although SAF Markets could theoretically be established as a speculative for-profit business it will be built as a non-profit social venture to minimise the risk of integrity corruption and maximise the pursuit of Sustainable Sky’s charitable objectives.
Preliminary forecast costs
Capital: US$500k
Operating: US$300k
Project Duration: Ongoing
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