One of the problems that a small province such as Manitoba has is that it often does not have the capital markets to assemble funds for major projects. Funds for such projects may need to be assembled and packaged elsewhere, such as for significant hydro development, a new mine installation, or even to finance government debt. While Manitoba has a considerable land mass, it has a relatively small population of 1.4 million, which supports a GDP of $65.9 Billion. These facts contrast significantly, for instance, with Ontario (15.6M pop, $800.4B GPD) and Alberta (4.7M pop, 349.1B GDP). Both provinces have endogenous capital formation capabilities, which are regularly exercised. This is less the case in Manitoba.

Manitoba’s fiscal ability is also limited, such that in 2023/24, it will receive the second highest level of equalization transfers from the federal government, in the amount of $3.5 billion. While fiscal transfers are appreciated and are necessary to finance critical public needs in health, infrastructure and social services, these transfer payments also point to the fact that the province is limited in creating and building projects that require a lot of capital.

A limited fiscal capacity makes major capital projects more difficult to muster in this province. Nevertheless, Manitoba has strengths in certain areas, including agriculture, which can be extended into unique major capital projects. These projects can offer significant long-term economic impacts. Very often, opportunities in agriculture do not compete with other regions, making them stand-alone, self-supporting and risk-reduced. One recent such project was the grand opening of Roquette’s pea protein plant in Portage la Prairie. This 200,000 sq ft facility is considered the largest of its kind in the world and required a $600 million investment towards its construction. The location of the pea plant gives it excellent road and rail access to its entire supply chain, from the source of its inputs to shipping to end customers.

Portage la Prairie now finds itself in another nexus of agriculture opportunities. The aerospace industry is trying hard to manage carbon emissions with a growing passenger demand. Part of the industry’s mitigation efforts are focused on better gas turbine engines or improved aircraft designs. These improvements, however, only reduce carbon emissions to a limited extent. A more holistic and long-term view needs to be taken.

Sustainable aviation fuel is one solution to reduce the aerospace industry’s carbon requirements significantly. In this case, products with high carbon values are converted into use as aviation fuel.

The Azure facility will predominantly utilize agricultural feedstocks to produce SAF by using a commercially proven and in-use technology. This process has been in use in Europe over the last decade and with increasing frequency in North America.

The Azure facility will be constructed in 2 phases, each phase capable of producing ~10,000 barrels per day of renewable fuels with a designed total capacity per site of 20,000 barrels per day.

At full capacity, the Azure facility will process approximately 1 million tonnes of feedstock to produce approximately one billion litres (265 million gallons) of renewable fuels annually.

The nearby electrical grid access and the province’s hydrogen production capabilities further enhance the selection of the Portage location.

The US Department of Energy reports that over 14 million gallons of SAF were produced in 2022. Several additional producers have announced SAF manufacturing, and many airlines have signed agreements with existing and future SAF producers to utilize hundreds of millions of gallons of these fuels. The SAF market is growing, as is the manufacturing of those products.

Manitoba has one recent entrant to this global marketplace. Azure Sustainable Fuels Corp is conducting a Front End Engineering Design (FEED) study for a planned Sustainable Aviation Fuel (SAF) facility. They are interested in locating in the Portage la Prairie area because of its significant agricultural activities as well as energy and transportation infrastructure. In this case, it is an excellent example of incrementing and levering local capabilities and relationships. Figure 1 shows the SAF Carbon Life Cycle as it applies to a location such as Portage la Prairie.

Figure 1:  SAF Carbon Life Cycle

Source: Rolls Royce

Early estimates for this plant are that it could be capitalized at $1.9 Billion and have a production capacity of 1billion litres a year. 

Capitalization of the project may well come from the Sustainable Canadian Agricultural Partnership (Sustainable CAP). Sustainable CAP is a CA$3.5 billion partnership between Canada’s federal, provincial, and territorial governments, focused on improving investments in the country’s agricultural sector. Sustainable CAP funding leads its program with CA$1 billion in federal programming followed by a further CA$2.5 billion that is cost-shared and jointly funded by the federal, provincial, and territorial governments.

Following its planning stages,  Azure Sustainable Fuels Corp aims to begin construction in 2024, with the facility expected to be complete by 2028. Once operational, their facility will contribute more than CA$500 million to Manitoba’s economy while creating 150 permanent highly-specialized jobs.

National SAF Technology Road Map

SAF is also an important fuel for the future of Canada’s national aviation and aerospace sectors. Earlier this year, the Canadian Council for Sustainable Aviation Fuels recognized this necessity and launched its first technology roadmap for SAF production. Canada already has enormous opportunities in the SAF supply chain, such as bountiful sustainable feedstock, existing refining capacity, and innovative technology providers. This roadmap intends to support industry participants while building on these opportunities for economic growth.

Domestic and international airlines are also seeking to decarbonize their operations. The CCSAF roadmap has a target of 1 billion litres of SAF production by 2030.  But this target, which represents only 10% of all jet fuel use in Canada, is just a waypoint on the way to net zero. By 2035, Canada should be ready to produce SAF to meet 25% of total jet fuel demand, which would reduce aviation emissions by 15-20% for departures from Canada.

For comparison’s sake, the global requirements for jet fuel are currently 110 billion gallons. At that rate, Canada has much to contribute to that target, and there is still a long way to go to meet those needs.

Aerospace Industry Support

Due to various developments in the aerospace industry, SAF is already considered a drop-in fuel (i.e., it requires no modifications to aircraft or aviation infrastructure). As presently used in ordinary operations, SAF is blended with up to 50% conventional jet fuel before dispensing. But moving forward, aerospace industry participants such as Rolls-Royce have already announced that they have completed compatibility testing for 100% SAF and indicate that there are no engine technology barriers to SAF use at that level. This provides SAF with a complete glide path to its use and deployment throughout the aerospace industry.

Rolls Royce, for instance, just announced (Nov 28, 2023) that they had completed a trans-Atlantic flight fuelled only by 100% SAF while using a Boeing 787 and their Trent 1000 gas turbine engines.

SAF Economics

Currently, SAF costs about $6.69 US per gallon compared to $2.85 US per gallon for conventional aviation fuel. With fuel accounting for 20 – 30% of the operational costs of aircraft, cost reductions here are necessary to make this fuel source competitive in the long run. As an interim measure, the US government offers its industries a $1.25 per gallon tax credit; this scales upwards to $1.75 per gallon, depending on the SAF fuel proportion used. Recognized here is also that governmental legislation will need to lead the way to improved SAF uptake by the aviation industry. Four key US departments have supported the SAF Grand Challenge Roadmap, which outlines the technological progress that is needed by focusing on new feedstocks and setting forward-looking production targets for the US.