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Japan’s green jet fuel ambitions fly higher with Itochu-Etihad deal

  • June 4, 2022
  • , Nikkei Asia
  • English Press

TAKEHIRO HASEGAWA and MAMORU TSUGE, Nikkei staff writers

 

TOKYO — Japan’s budding supply chain for sustainable aviation fuel is adding more links, as trading house Itochu becomes the first company in the country to supply the cleaner alternative to a foreign carrier.

 

Under a contract inked in May with Emirati carrier Etihad Airways, Itochu will procure sustainable aviation fuel, or SAF, from Finland’s Neste to refuel Etihad planes that land at Narita Airport near Tokyo starting this month.

 

SAF is poised to become essential to the aviation industry as countries tighten their environmental regulations, and a reliable supply chain will likely be key for airports — and countries — to be competitive as aviation hubs in a lower-carbon future.

 

The arrangement with Etihad expands the Itochu-Neste partnership, which began in 2020 and already provides SAF to All Nippon Airways.

 

Neste is the world’s top supplier of sustainable aviation fuel, producing about 100,000 tons per year. Its capacity is slated to rise to 1.5 million tons with an expansion of its Singapore plant set to finish by the end of next year. Japan and Singapore are Neste’s only Asian SAF markets, though the company plans to expand to Malaysia soon.

 

Neste decides which markets to enter based on whether they have government policies to promote the formation of an SAF market, Sami Jauhiainen, Neste’s vice president for renewable aviation in the Asia-Pacific region, told Nikkei.

 

Japan’s transport ministry aims to have the aviation industry switch to 10% sustainable fuel by 2030, a goal that would require about 1.3 million kiloliters of SAF per year. To this end, it is considering tax incentives to encourage investment in production facilities.

 

Japan could become a major growth market if the government leads the way with mandates and subsidies, Jauhiainen said.

 

One thing standing in the way of SAF being adopted is the high costs. SAF can be as much as 16 times more expensive than regular jet fuel.

 

The government plans to bring the price of SAF to the 100 yen (77 cents) per-liter range by 2030, which is close to the current price of jet fuel. Subsidies of around 30 billion yen will be allocated for this initiative.

 

Japanese companies are jumping into a market seen having bright growth prospects. Eneos is partnering with France’s TotalEnergies on production at an Eneos refinery in Yokohama. The Tokyo-based refiner is also working with Mitsubishi Corp. to establish a domestic SAF supply chain, including feedstock, by around 2027.

 

JGC Holdings and Cosmo Oil plan to begin large-scale production of SAF in Osaka Prefecture in 2025, converting used cooking oil from restaurants and food processing facilities. JERA, a joint venture between Tokyo Electric Power Co. Holdings and Chubu Electric Power, is working with companies including Itochu on a production trial using woody biomass.

 

The International Air Transport Association’s member airlines have pledged to achieve net-zero carbon dioxide emissions by 2050. Switching over completely to SAF can slash an aircraft’s lifecycle CO2 emissions by 70% to 90%. Though the U.S. and Europe have been moving to encourage broader adoption with mandates and incentives, Asia has seen few steps in that direction.

 

Singapore is Japan’s main rival. In February the city-state launched an international advisory panel on designing a sustainable air hub. The blueprint that will be released early next year will provide a guide on creating a sustainable demand and supply ecosystem for SAF.

 

Also in February, Shell started supplying SAF in Singapore in anticipation of an expanding market for the fuel.

 

Japanese airports appear to be squeezed by Chinese and Indian counterparts. In the pre-pandemic year of 2019, Beijing Capital International Airport had the most arrivals and departures in Asia at 590,000, according to Airports Council International.

 

The traffic was followed by Shanghai Pudong International Airport, Guangzhou Baiyun International Airport and Delhi’s Indira Gandhi International Airport.

 

Tokyo’s Haneda International Airport came in fifth among Asian airports at 450,000 landings and takeoffs, while Narita Airport did not make the top rankings. The establishment of SAF supply chains ahead of tougher environmental rules is expected to impact the competitiveness of an airport.

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