Velocys strikes sustainable fuel offtake deal with Southwest Airlines

Sustainable fuels technology company Velocys announced on Wednesday that its wholly-owned subsidiary Velocys Renewables had entered into its first offtake agreement for the sustainable aviation fuel (SAF) to be produced at the planned Bayou Fuels biorefinery project in Mississippi, with Southwest Airlines.

The AIM-traded firm said the agreement covered the purchase by Southwest of an expected 219 million gallons of SAF at a fixed price, over a 15-year term starting as early as 2026, when the biorefinery was scheduled to begin commercial delivery of fuel.

After blending, that would enable around 575 million US gallons of net zero SAF.

The company said the offtake agreement covered two thirds of the project facility's planned output, and had the potential to generate multi-billion revenues over the life of the contract.

Each gallon of SAF generated by the project was expected to generate tradable greenhouse gas credits, for which Southwest guaranteed a minimum price payable to the project included in the fuel fixed price, de-risking a “significant proportion” of the revenue stream to the project.

The company said the project could additionally benefit from the value of greenhouse gas credits if sold above the minimum price by Southwest.

In addition, Southwest and Velocys had established a long-term strategic relationship as a part of the offtake agreement, potentially advancing future Velocys SAF-producing facilities and allowing Southwest first offer rights to purchase significant volumes of SAF from such facilities.

Through the combination of biogenic feedstock, renewable power and carbon capture and storage, Velocys said its carbon mitigation technology would enable the commercial-scale production of SAF at the Bayou Fuels plant, with a “strongly negative” carbon intensity, which was expected to achieve a total of 6.5 million tonnes of avoided carbon dioxide over the term of the contract.

“Today's announcement is a major milestone for the Bayou Fuels reference project and further strengthens our conviction in the important role sustainable fuel will play in the future of the aviation industry,” said chief executive officer Henrik Wareborn.

“It is very encouraging to see Southwest make such a strong commitment to using fossil free fuel as part of its environmental sustainability plan and to see Velocys technology performing a central role in making this possible.”

Wareborn said the unique, long-dated offtake, encompassing fuel purchases and sales of greenhouse gas credits, underpinned the financing of construction capital for the project.

“This agreement shows that commercial scale demand for SAF can be satisfied already by the middle of this decade and that Velocys plays a pivotal role in enabling this.”

At the close on Wednesday, shares in Velocys were up 33.33% at 8.4p.