Sarah: Hello, everyone, and welcome to SAF Insights. In this series, we discuss the forces that affect the sustainable aviation fuel market globally.
So, Argus has just launched FOB Strait of Malacca sustainable aviation fuel, or SAF, and hydrotreated vegetable oil, or HVO, prices, on 30th January. They join our FOB China SAF and HVO prices, as well as our suite of feedstock assessments, to provide comprehensive coverage of Asia-Pacific biofuels markets. As of now, we already see over 3 million tons per year of maximum operational nameplate production capacity of SAF and HVO, via the hydrotreated esters and fatty acids, or HEFA, pathway in this region, which is supported by feedstock availability, and over 300,000 tons per year of additional capacity possibly online this year as well. So, this places Southeast Asia as a key global producer of these renewable fuels.
To introduce myself, I'm Sarah, Associate Editor from Argus' Asia-Pacific Biofuels and Net Zero team. And today I have with me Alfonso, who is our VP of Business Development for Oil Products and SAF. Together, we are just going to introduce the rationale behind why we launched these new assessments, as well as touch on some of the recent developments that we are seeing in the region.
To kick off the podcast, why did we choose to launch these price assessments now, especially as a common feedback we've heard during the consultation process is that there are only two producers in the region at present?
Alfonso: Yes, it is true that today there are only two HEFA producers in this region, the Neste plant in Singapore, and the EcoCeres plant in Malaysia. However, as we already mentioned, the region is supposed to become a trading hub for hydrotreated products in the near future. Bangchak, in Thailand, will start operating during the second half of this year. That would take the total nameplate capacity of HVO and SAF to 3 billion tons, approximately. Furthermore, the Eni-Petronas plant in Malaysia will join in 2028. Plus, we expect another couple of projects in the region to be operating, like, for instance, the Absolute Energy plant in Thailand, which is still commissioning.
At the same time, Asian SAF demand is slowly forming, and it will require part of this production capacity to remain in Asia, rather than just being shipped out to Europe, creating two trade flows, an East-West arbitrage, and the Asian-bound cargoes. Just to be specific, Singapore's mandate starts this year, in 2026. The Thailand's MOU starts as well in 2026, and then South Korea mandate in 2027, and Indonesia and Malaysia as well are looking into implementing policy by 2027. Plus, let's not forget, there will be as well demand generated by CORSIA.
From the HVO side, we're seeing a dramatic increase on HVO Class II demand already coming from Europe. So, we cannot wait, really, till all these trade flows are already established to launch the price, because it is not just a matter of liquidity. It's as well a matter of adding transparency, as these trades start to happen in the market.
Sarah: Thank you. Yeah. Understood. We do indeed have to start early, to take ownership of this pricing space. And will the previous SAF and HVO FOB Singapore netbacks from Europe still be continued at present?
Alfonso: Yes, yes. They will continue to be published, because they are used by market participants, and because today, they are a useful proxy to build an East-West spread. However, we will expect that as the liquidity of transactions in Southeast Asia increases, regardless whether the SAF goes to Europe or stays in Asia, the most reflective price will be this new FOB Strait up Malacca assessment. At the moment, the FOB Singapore, yes, gives the value of the freight of an MR carrying SAF, but the FOB Strait of Malacca assessment will be instrumental to understand the actual East-West spread, and very important will be a useful benchmark, even, or maybe, for Chinese producers to see how competitive they are with Southeast Asia and vice versa.
Sarah: Understand that the latest SAF prices that we've launched will be the most accurate value of SAF and HVO in the region. And for these prices, will they include co-processed and CORSIA-certified SAF volumes? Or not for now?
Alfonso: That's a good question, and we have quite a lot of these question. Okay. So, the straight answer is no. And the reason why is because what we are looking for is, at this stage, to standardize the value of a HEFA molecule that meets most of the demand, as required by the market. And today, that molecule is produced using HEFA technology, use cooking oil as a feedstock, and that market is Europe. Therefore, RED will continue to be the biggest source of demand globally, and most of the volumes will still be traded to meet the European Union mandate, so they want to be RED-compliant, or the UK mandate. But for the UK mandate, RED assessment is still the best possible proxy.
Now, in the specific case of the HEFA-SPK, is the variant of CORSIA, as you ask. CORSIA SAF will become very important, particularly in Asia. Those volumes that stay in Asia not necessarily need to be, or they don't need to be at all RED-compliant. So, when we're ready, and when the market is ready, we will launch a CORSIA supplies, in due time. Generally speaking, we don't assess co-process trades, as the product comes already as a blend, and it is difficult to ascertain the specific content of the biocomponent. We are really specialized on assessing biofuels on its own, and actually, co-processed SAF normally doesn't travel too far, and tend to remain close to the point of manufacture.
Now, all this probably sounds good. However, the really difficult thing is to come up with the assessment every day. So, that is actually, Sarah, on your side. You have the really difficult job. So I would like to ask you, how are we assessing these prices, so the audience can better understand where they come from?
Sarah: Yes, indeed. [inaudible 00:08:40] liquidity is indeed still developing. In the absence of any firm indications, we first use forward European SAF and HVO values, because the market is much more liquid there. And, like you mentioned, that's where most of the volumes from Southeast Asia are flowing towards at the moment. So, I'll take those forward values, subtracting certain factors to arrive at an approximate FOB Straits value first. And if you'd like to know more details on the components that we consider, feel free to reach out to biofuels@argusmedia.com, and I'll be very happy to pick the request up.
So, after we have this number, I'll then take it to traders, sellers, buyers, brokers, etc., and we'll canvas the market and get their thoughts on it, and then combine that with any indicative of firm bids, offers, or deals we hear throughout the day, to arrive at a final assessment. So, the cutoff time every day is 4:30pm Singapore time. And in addition to the above, we also monitor how neighboring Chinese and European spot SAF and HVO markets are doing, as well as any other potentially market-moving news. So, in a nutshell, this is how we are assessing the prices at the moment. For more information, as mentioned, you can reach out to the email that we stated previously.
Alfonso: Okay. Thanks, Sarah, for that. And I'm gonna ask you another thing. I mentioned very, very, very briefly, I think at the beginning of the podcast, but probably you can explain it a bit better. What are some of the latest developments of SAF targets that we're seeing in the region?
Sarah: Yep. Thanks, Alfonso. As you mentioned previously, Singapore has announced a target of 1% SAF usage for all flights departing the country this year. And this will be funded by a SAF levy on all passenger, cargo, general, and business aviation flights departing from 1st October, applicable on tickets or services sold from 1st April. So, as Singapore is the first country globally to implement a SAF levy, we do see that other countries are watching closely to see if there can be any learnings on their end as well. So, Singapore is now trialing the processes needed to purchase SAF at a national level, as well as the allocation system for SAF environment attributes, or EAs, for companies, claims, and reporting. We've adopted a system where SAF and EA demand will be aggregated and centrally procured, to achieve larger economies of scale.
The first voluntary trial purchase is expected to happen via a tender, before October. Nine companies, including Google, the Boston Consulting Group, Temasek, GenZero, local banks, and airlines, have just launched this trial earlier this month, with SAFCo, which is a non-profit company set up by Singapore's Civil Aviation Authority, to essentially procure the clean fuel, and relate the EAs.
Further afield, like you mentioned as well, Thailand has also launched a 1% voluntary SAF target for flights departing the country, starting this year. This target could rise in stages to up to 8% in 2033 to 2037. Similarly, Singapore's target could rise to 3% to 5% by 2030, but this is subject to global developments and the wider availability and adoption of SAF. So, this cautious, more pragmatic and measured approach is a common thread among the Asian SAF targets we've seen thus far.
Last year, South Korea also released a roadmap for its SAF mandate, starting 2027, where all international flights will be required to use jet fuel with a 1% SAF blend. This target could potentially rise to 10% by 2035, but that's still to be confirmed, and will consider domestic production capacity, other country targets, and global market conditions. While there are penalties if fuel suppliers fail to meet targets, this has been deferred for an unspecified period. Some of the obligated SAF supply could be deferred for up to three years, and the country will also consider reducing the SAF plan percentage in unavoidable circumstances, like natural disasters. There are also certain funding and incentives available.
Finally, we do expect to see targets from countries such as Indonesia, and potentially Malaysia soon, although this is still in the works, from what we hear from our market contacts. Yeah, and I think, just to round off the podcast, I would like to ask you, Alfonso, how you see the Southeast Asian SAF and HVO market developing in the short and long term, and how this market compares with European markets as well.
Alfonso: So, I will start with SAF. In the long term, Singapore and the Straits should become a trading hub for hydrotreated products, yeah. And that will mean that it's not only SAF which is being produced and exported by the, [inaudible 00:14:41] what you call them, the local producers, like Neste or EcoCeres, and Bangchak on Thailand, or whoever operates more HEFA plants in the regions. But as well, by traders, who may take storage positions, to bring the product from different origins and trade it as they see fit. They could sell it into Asia, or into Europe, or other regions. I mean, we're still really far from this, so this is long-term. Definitely, this will reinforce the concept of an East-West arb, and it will require very robust pricing tools for risk management.
Separate to this, if we zoom out, right, and we look at market size, and GDP growth projections, Asia really will be the biggest consumer of aviation fuel globally, yeah? And it's the biggest producer of SAF already. So, if we look at 50 years ahead, maybe SAF consumption in Asia can rival that SAF consumption in Europe, right, through mandates, and because, as well, it's much more volume consumed of jet fuel here [inaudible 00:16:04] I mean, Europe will still be the big focus on demand in the short, mid-term. But we could have a scenario, very similar to the scenario that we have with the distillates markets, and with flows of diesel or jet fuel, going from Asia to Europe, but as well with a strong APAC demand.
The HVO is different. What we see in HVO is a huge demand of renewable diesel coming from Europe, but we don't see really demand at this stage. I mean, in Asia, there may be a small number of trades, but really, really at the moment, is one-direction flow, so it's really difficult to foresee whether there will be a local HVO market here in Asia in the long term, because at the moment, in the short term, we don't see any.
Sarah: Yes. Indeed, the HVO space is definitely still going in APAC. Yeah. So, thank you very much, Alfonso, for sharing. And if you are tuning into this podcast, thanks for listening as well.
For more information on Argus Biofuels coverage, you can head to argusmedia.com and search for "Biofuels," at the top right-hand corner, which will lead you to our main page. Take care, and see you next time.
