Asia is the ‘next big frontier’ for sustainable aviation fuel as governments push green mandates

Neste’s Tuas refinery in Singapore, following a $1.9 billion expansion and 2023 reopening, can produce up to 1 million tonnes of sustainable aviation fuel (SAF) annually; Hong Kong-based EcoCeres has opened a 420,000‑tonne/year plant in Johor on top of its 350,000‑tonne plant in Jiangsu. Regulatory moves—Singapore mandating 1% SAF by 2026 and targeting 5% by 2030, South Korea’s mandate for international flights by 2027 with a 7–10% target by 2035, and EU ReFuelEU targets—along with ASEAN demand/production projections and new capacity signal growing market opportunity, but feedstock scarcity and collection complexity remain material supply risks.

Analysis

Market structure: Mandated SAF quotas (1% Singapore by 2026, Korea 7–10% by 2035, EU ReFuelEU 2% by 2025) create a predictable incremental demand floor — roughly 15k b/d in SE Asia to 700k+ b/d by 2025 per ASEAN forecasts — benefiting large-scale SAF producers, feedstock collectors, and logistics hubs (Singapore/Johor). Incumbent crude refiners without renewables capex face margin compression versus integrated players adding SAF capacity; feedstock competition will bid up vegetable/palm oil and UCO prices, shifting cost curves and export balances in MYR/IDR economies.

Risk assessment: Tail risks include a feedstock price spike (UCO/palm up >30% YoY) that renders many projects uneconomic, regulatory reversals or stricter sustainability certifications that retroactively disqualify feedstocks, and operational bottlenecks in waste collection/logistics. Timewise, expect minimal market moves in days, material policy/contract-driven moves in months (next 6–12) and structural capacity reallocation over years (2025–2035). Hidden dependencies: sustainability certification, shipping chokepoints, and fertilizer/food-price politics that could force caps on feedstock use.

Trade implications: Prefer convex exposure to scale winners and feedstock plays: long large SAF-capable refiners and selected palm/oil processors, protect with defined-risk options; hedge airline demand sensitivity with shorts or call overwrites. Cross-asset: buy palm-oil futures or processors to capture feedstock tightness; consider MYR/IDR carry to capture export receipts from SAF plants; corporate credit of project owners may tighten spreads as capex ramps.

Contrarian angles: Consensus underestimates feedstock scarcity and political backlash — scaling to millions of b/d assumes unlimited certified waste feedstock which is unlikely; mandates may force high-cost SAF that keeps prices elevated and suppresses airline demand growth. Historical parallel: early biofuel mandates in EU caused rapid feedstock price cycles and policy pushback; be cautious of overpaying for growth expectations through 2030.

Key Decisions for Investors

• Establish a 2% portfolio long position in Neste (NESTE.HE) via a 12-month bull-call spread: buy a 10% OTM call and sell a 30% OTM call to capture upside from SAF demand acceleration while capping premium; exit on share +40% or if company misses announced capacity ramp by >6 months.
• Allocate 3% notional to a 12-month bull-call spread on Shell (SHEL.L) (strikes ~+15%/+40%) to capture SAF project optionality; trim if Shell fails to announce >200k tpa SAF offtakes within 9 months or if sector rotates negatively >15%.
• Run a 6–12 month pair trade: long Wilmar/major palm-oil processor (e.g., F34.SI) 3% notional and short JETS ETF 2% notional (airline sector) to capture feedstock price upside vs demand elasticity in air travel; set symmetric 10% stop-loss on each leg.
• Initiate a 6–12 month tactical long MYR position (via USD/MYR forward or ETF) sized 3% notional to capture export/capex tailwinds from Malaysian SAF plants; unwind if MYR strengthens >5% or if Malaysia does not publish binding SAF offtake targets ≥1% by Q4 2025.