The closure of the Strait of Hormuz hasn’t just stopped the flow of natural gas and crude oil but has also simultaneously made it more difficult to get refined products—everything from jet fuel to cooking fuel—to market. In theory, both the rapid price increases and the present volatility should provide a strong incentive to invest in alternative fuels. The reality is more complicated. The same forces that make the case for alternative fuels also make it hard to invest right now.
Alternatives are already on the market. Sustainable Aviation Fuel (SAF), an umbrella term for a wide range of fuel sources including everything from recycled cooking fuel to plant-based fuels, is blended with jet fuel in many parts of the world, bringing down carbon emissions from flying. But in recent years SAF has been anywhere from 3 to 5 times more expensive than conventional jet fuel. The closure of the Strait of Hormuz has closed some of that gap leaving SAF prices closer to 1.5 to 2 times as expensive.
The refiners who make SAF, on the other hand, are enjoying record profit margins. But they, too, see too much uncertainty as prices fluctuate wildly. On earnings calls this summer they say they are more focused on improving operations and executing existing plans than investing in new projects.
The industry already sees this opportunity. Last year, a SAF executive corrected me when I used the word “sustainable.” It’s “synthetic aviation fuel.” Better optics, he said.
Even amid the uncertainty, the clever businesses—whether that’s airlines, refiners, fuel transport companies, or commodity traders—will be the ones that figure out how to deploy alternative fuels while mitigating risk.
After decades of success innovating and deploying clean power alternatives, more work needs to be done on molecules. Today’s volatility is making the business case.
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