• Korea announced tax breaks and other incentives for those businesses investing in sustainable aviation fuel projects
• Many countries, including Japan and those in the EU, will require sustainable aviation fuel blends to be used from next year onward
• Some South Korean airlines have begun using sustainable blends, but domestic targets are still relatively small

Sustainable aviation is the future. A big part of these efforts comes in the form of sustainable fuel, a mixture of traditional jet fuel blended with waste products or food stocks. For South Korea, the clock is now ticking for oil refiners as they must transition production in order to keep the sector strong. Asian Insiders’ partners in Korea, Hannes Humala and Sean Han, explore what needs to be done to ensure Korea wins the race to develop sustainable aviation fuels.

South Korea needs to ramp up production of sustainable aviation fuel (SAF) quickly. As the world’s largest exporter of traditional aviation fuel, this will be the only way the country can remain competitive in the long run as that is phased out.

For example, as part of the RefuelEU policy, EU airports mandate that fuel supplied feature SAF blends of at least two percent next year, gradually increasing over time before reaching 70 percent in 2050. Elsewhere, Singapore will require SAF to be used beginning in 2026 while Japan has pledged to use 10 percent SAF at the country’s airports by 2030.

On the other hand, Korea has only started to launch SAF pilot projects. Korean Air rolled out an initiative that will see a weekly international flight use domestically produced SAF featuring a one percent blend. Other airlines are expected to launch similar trials in the coming months.

The Ministry of Trade, Industry and Energy, along with the Ministry of Land, Infrastructure and Transport, announced plans that will see all departing international flights from South Korea use a one percent blend of SAF beginning in 2027.

Even with the industry still in its infancy, the Seoul government has set lofty targets. It believes exports could account for as much as 30 percent of global SAF sales. Doing so would require Korea to increase production from 240,000 metric tonnes in 2022 to potentially as much as 18.35 million metric tons per year by 2030.

Korea sustainable aviation fuel ready for take-off?

Sensing a need to kickstart efforts, the Korean government began enforcement of the Petroleum and Alternative Fuel Business Act in August to expand the use of eco-friendly materials in petroleum refining processes. There is hope the legislation creates a favourable environment that allows for more companies to focus on SAF development.

Before the measure went into effect, petroleum products, including jet fuel, were only allowed to be produced from natural crude oil unless the refinery had government approval to conduct co-processing with biofuels. This made building SAF production facilities in Korea unduly complicated.

The government also recently unveiled its SAF Expansion Strategy which includes up to USD3 billion in planned tax breaks and incentives for firms producing sustainable jet fuel. This is seen as a positive step forward for the country, which had previously lacked tax credits or other incentives to encourage investment in the SAF industry.

Need for a co-pilot

Ultimately, Korea requires assistance in building the infrastructure needed to develop sustainable aviation fuels. Even with government policies being rolled out, support in the form of technologies and expertise will be vital to scaling up efforts.

The Korea Petroleum Association has already gone on record to say local refiners are not ready for the transition from traditional aviation fuel to sustainable ones because the infrastructure is not in place.

Overseas firms in markets where SAF development is further along can play an essential role in supporting Korea’s attempts to build up the industry. With only the basics in place across the entire supply chain, there are lots of opportunities in this space at present with a rush to build SAF production facilities already being seen.  

Competition takes shape  

It should be noted that the SAF industry as a whole is still relatively young. The International Air Transport Association estimates that production capacity will not exceed 1.5 million metric tonnes this year. That will be changing in the coming years.

Approximately 200 SAF production projects are in various stages of development worldwide, meaning competition in this space is increasing. That means South Korea must transition quickly if it is to remain the leader in global aviation fuel exports.

In China, biofuel firms are investing more than USD1 billion in facilities that convert waste cooking oil into aviation fuel. Meanwhile, Australia has set aside more than USD1 billion for SAF projects, and the United States government announced that it plans to invest almost USD300 million in SAF facilities and related technologies. Other countries in Asia with refining capabilities are also looking at how they fit into the picture.

It should be stressed that no country is too far ahead in the SAF race. South Korean companies also have made some advancements. For instance, HD Hyundai Oilbank recently became the first domestic company to export SAF. Additionally, S-Oil received ISCC EU which permits it to export SAF to the European market.  

Final thoughts

Easing restrictions on the production of SAF was a step in the right direction. So too was providing refineries support through tax breaks and other incentives as part of the SAF Expansion Strategy. Now, in the face of mounting competition and changing demand, South Korea is expected to be active in ramping up the production of sustainable aviation fuel.

That will be the only way to continue as the global leader in aviation fuel exports and reach its stated targets. However, support in the form of knowledge, technology, and infrastructure will be required, given the country’s lack of movement until recently. International firms with experience in these areas can find opportunities in Korea throughout the supply chain.

To learn more about available opportunities in Korea as it relates to sustainable aviation fuel, schedule a no-obligation call with Sean Han, Managing Partner – Korea: sean.han(at)asianinsiders.com or Hannes Humala, Korea Partner: hannes.humala(at)asianinsiders.com