Whalesbook
The Economics of Compliance
The push for blending mandates is part of India's energy strategy shift, but the financial side is challenging. Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum face high costs for SAF production, which requires expensive refinery upgrades. The main issue is the large price difference between SAF and traditional jet fuel. Since SAF production costs are three to five times higher, adoption could stall unless the government provides financial support through viability gap funding or tax breaks.
Scaling Production Amidst Volatility
Refinery upgrades are underway, but these projects are vulnerable to global oil price swings, especially from West Asia. Indian Oil Corporation has made early deals with airlines, hoping that increasing volumes will eventually lower costs. However, profitability is uncertain. Unlike Europe, where carbon pricing has already encouraged SAF use, Indian refiners must balance emission goals with the need for affordable air travel. While small price increases might cover immediate losses, relying on feedstocks like used cooking oil creates supply chain risks that could affect production consistency.
Structural Vulnerabilities
These companies' reliance on government policy creates regulatory risk. If a national SAF policy isn't finalized to protect refinery profits, these investments could fail. Global oil companies often use carbon credits to offset SAF losses, a benefit not yet fully available to Indian firms. With their current debt levels, these state-owned companies have limited capacity to absorb prolonged losses if SAF remains too expensive through 2028.
The Future Outlook
Company leaders expect the 2027 mandate for 1% SAF blending to create a stable market. Analysts believe the success of these efforts depends entirely on the government's commitment to manage the initial price increases. Until the domestic policy is clearer, these refinery investments will be seen as long-term projects with uncertain returns, drawing close attention to how costs will be passed on to the aviation industry.