Fuel-from-waste pioneer Velocys has made the world’s biggest sustainable aviation fuel (SAF) plant more investible, as it detailed massive likely long-term supply deals to two big airline groups.

Six months from now, two outline deals announced yesterday could be firmed up into binding contracts yielding up to $ 800 million in long-term sales for the Oxford-headquartered group.

Within five hours, the announcement had added over £20 million to the UK firm’s market capitalisation. Before dropping to close at 8.40 pence, its shares had soared 38%, at one time valuing Velocys at £67 million.

Through its Velocys Renewables subsidiary, the parent announced a non-binding ten-year understanding to produce for International Consolidated Airlines Group (IAG) 73 million gallons of sustainable aviation fuel (SAF) at a set price. IAG includes brands such as British Airways, Iberia and Aer Lingus.

Production will come from the energy company’s planned Bayou Fuels complex, due to open in 2026 in Natchez, Mississippi.

After blending, IAG member airlines will take an amount equivalent to 192 million US gallons of net zero SAF.

The IAG deal will represent one-third of production from the planned plant. It will be dwarved by the other two-thirds, destined for US airline Southwest Airlines, under a  similar non-binding deal also announced yesterday.  That 15 year deal looks likely to see the US operator take 575 million gallons of Bayou Fuels’ production.

Velocys claims market leadership in synthesising hydrocarbons without greenhouse gases via a method known to chemists as the Fischer-Tropsch reaction. Household waste, including end-of-life plastics, and forestry offcuts are its feedstock.

Before May 2022 Velocys and its named airline customers intend turning yesterday’s non-binding agreements into formal sales contracts. Yesterday’s deal also gives IAG an option to buy into the Mississippi plant’s development.

The parties’ fixed price agreement includes a price support mechanism by IAG for the greenhouse gas credits associated with the SAF’s production. Over the decade of the offtake, BA and its IAG sisters could be avoiding as much as 2.2 million tonnes of CO2.

Velocys says biogenic feedstock, power from renewables, plus carbon capture technology designed into the Bayou Fuels plant will make the fuel produced “deeply carbon negative”.

CEO Henrik Wareborn said: “We are delighted that IAG, our partner for many years through our work with British Airways, intend to purchase a large volume of SAF from the Bayou Fuels project. This long-dated offtake, encompassing support for environmental credits, will provide certainty of revenue for the Project which should enable construction capital financing.

“Velocys’ focus is now on accelerating technology delivery with our partners “, Wareborn added.

“Our capital-light, technology-licensing model will enable many more aviation clients to transition to Sustainable Aviation Fuel as required by the race to Net Zero.”

Luis Gallego, IAG’s CEO said: “IAG is investing US$400 million in the development of sustainable aviation fuel in the next 20 years. This new agreement is another important step towards achieving our goal of 10 per cent sustainable aviation fuel use by 2030”.


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