IFM Issues Ultimatum Over A$3 Billion Australia Fuel Project
(Bloomberg) -- IFM Investors Pty warned it may scrap a proposed A$3 billion ($2.2 billion) investment to make sustainable aviation fuel in Australia, unless the government mandates that airlines use the product.
IFM, which owns stakes in airports from Sydney to London, has spent at least two years assessing plans to produce the cleaner-burning fuel from local agricultural feedstock. To proceed with the project, the company needs government policy to guarantee demand for the fuel from carriers such as Qantas Airways Ltd., Danny Elia, IFM’s global head of infrastructure asset management, said in an interview on Monday.
“Within the next six or so months, we are really going to need to see some finality around the policy framework,” Elia said. “We actually need a demand-side mandate.”
Sustainable aviation fuel, which airlines say can cut aircraft emissions by as much as 80%, is aviation’s best shot at decarbonization. But global output of SAF, as it’s known, is barely a trickle of required volumes, partly because laws aren’t in place to encourage producers. Total SAF production last year was less than 1% of global jet fuel consumption.
“You will not see a project of any significance get up at all without demand-side support,” Elia said.
The office of Australian Minister for Climate Change and Energy Chris Bowen had no immediate comment.
IFM’s ultimatum adds to calls from plane manufacturer Airbus SE for government policies to create a sustainable fuel supply chain in Australia.
The Iran War has highlighted Australia’s reliance on fuel imports just to get flights off the ground. Qantas and smaller rival Virgin Australia Holdings Ltd. have already cut services and raised fares due to soaring jet fuel prices.
According to Elia, producing home-grown sustainable fuel would go some way to addressing Australia’s fragile fuel security.
IFM’s fuel push is also designed to support its own investments. The firm owns stakes in gateway airports including Sydney, Melbourne and Brisbane, while its global portfolio includes London Stansted and Vienna Airport.
IFM manages A$266 billion of assets globally and is owned by some of the nation’s biggest pension funds and UK fund Nest.
Laws requiring airlines to fill their tanks with a small percentage of sustainable fuel haven’t been universally popular.
According to airline lobby group the International Air Transport Association, mandates like those in Europe have pushed SAF prices higher, discouraged voluntary demand and reduced output. The cleaner fuel is typically more than double the price of normal jet fuel, and mandates can make it four times more expensive, IATA said in February.
IFM is assessing its project with agribusiness GrainCorp Ltd. and fuel company Ampol, according to a paper published last year. The proposal involves building a new feedstock crushing facility, and a new fuel refinery in the Brisbane suburb of Lytton.
A representative for GrainCorp declined to comment on IFM’s position. An Ampol spokesman said a competitive lower-carbon, liquid-fuels manufacturing capability will only be possible with supportive demand and supply policies in place.
“We have stretched our timeline, but we just can’t stretch anymore,” Elia said in the interview. “You can’t hold preferred sites where you want to build forever.”
“It’s either invest or go home,” he said.
(Adds comment from IFM’s Elia in the final paragraph)
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