Oct 17 (Reuters) - Southwest Airlines ( LUV ) has

entered into a deal with a unit of Valero Energy ( VLO ) for the

supply of sustainable aviation fuel (SAF) to the Chicago Midway

International Airport, the carrier said on Thursday.

The U.S. Energy Information Administration expects domestic

production of biofuels to increase by about 50% in 2024, led by

rising production of SAF, which can help decarbonize the

aviation sector.

Under the two-year agreement, Illinois' largest SAF supply

deal, Southwest ( LUV ) will purchase a minimum of 3.6 million gallons

of neat SAF for use in its operations as early as in the current

quarter, the company said in a statement.

The carrier will also have the option to purchase up to 25

million gallons of neat SAF over the agreement's term.

Southwest ( LUV ) said the neat SAF is expected to be produced from

waste-based feedstocks, including used cooking oil, animal

tallow, and distiller's corn oil.

Diamond Green Diesel, a joint venture between the unit of

Valero and Darling Ingredients ( DAR ), will supply the neat

SAF, which will be blended with Valero's conventional jet fuel

and delivered through existing fuel delivery infrastructure.