Alongside offtake MoU with IAG, commitment for 100% of Bayou Fuels SAF
Velocys plc (VLS. L), the sustainable fuels technology company, is pleased to announce that its wholly owned subsidiary, Velocys Renewables LLC, has entered into its first offtake agreement for the sustainable aviation fuel (“SAF”) to be produced at the planned Bayou Fuels biorefinery project in Mississippi, USA (“Project”), with Southwest Airlines Co.® (“Southwest”).
The agreement covers the purchase by Southwest of an expected 219 million gallons of SAF at a fixed price, over a fifteen-year term starting as early as 2026, when the biorefinery is scheduled to begin commercial delivery of fuel. After blending, this will enable approximately 575 million gallons of net zero SAF. (Net zero is determined as a fuel with a carbon intensity of zero (0) gCO2e/MJ or lower on a lifecycle basis.)
The offtake agreement covers two thirds of the Project facility’s planned output and has the potential to generate multi-billion revenues over the life of the contract. Each gallon of SAF generated by the Project is expected to generate tradable greenhouse gas credits for which Southwest guarantees 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 Project may additionally benefit from the value of greenhouse gas credits if sold above the minimum price by Southwest.
In addition, Southwest and Velocys have 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’ carbon mitigation technology will enable the commercial-scale production of SAF at the Bayou Fuels plant with a strongly negative carbon intensity of up to -144g CO2e/MJ, which is expected to achieve a total of 6.5 million tonnes of avoided CO2 over the term of the contract.
Henrik Wareborn, CEO of Velocys, said:
“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.
“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.
“This unique long dated offtake, encompassing fuel purchases and sales of greenhouse gas credits, underpins the financing of the 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.”
Stacy Malphurs, Vice President of Supply Chain Management & Environmental Sustainability for Southwest Airlines, said:
“We’re excited to enter into a 15-year offtake agreement with Velocys, enabling Southwest to utilise negative carbon intensity SAF to produce significant quantities of net zero fuel after blending with conventional jet fuel.
“As we work toward our ultimate goal of carbon neutrality by 2050, this offtake agreement will play an important role in our strategy to reduce our carbon emissions intensity and incorporate SAF into our operations on our journey improve our environmental stewardship.”
Further terms of the Offtake Agreement
The agreement is subject to certain customary conditions precedent including completion of satisfactory financing for the final engineering phase and certain construction milestones, eligibility for greenhouse gas credits as well as the enactment of the proposed SAF tax credit legislation.
Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.
18 May 2023
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