LONDON (Reuters) - British power company Drax said on Thursday it had reached an agreement on the terms of a multi-year supply deal of biomass pellets for Pathway Energy's proposed sustainable aviation fuel project in the United States.

Under the deal, Drax will supply more than 1 million tonnes a year of sustainable biomass pellets to the plant on the U.S. Gulf Coast.

The plant will produce 30 million gallons of carbon negative jet fuel per year, equivalent to more than 150 million gallons of carbon-neutral blended sustainable aviation fuel (SAF).

The plant should begin construction in 2026 and commercial production is expected to start in 2029.

When fully operational, the plant will be capable of producing 30 million gallons of carbon-negative SAF annually, the equivalent of enough fuel to power 5,000 carbon-neutral long-haul flights over 10 hours per year.

Pathway intends to develop a bioenergy with carbon capture and storage system at the site in Port Arthur, Texas, which could remove 1.9 million tonnes of carbon dioxide from the atmosphere each year.

Airlines are under pressure to reduce emissions as the aviation industry generates roughly 3% of global emissions.

SAF is made from renewable biomass or waste and is seen as a lower carbon alternative to petroleum-based jet fuel.

SAF currently accounts for around 0.1% of aviation fuel used globally.

The White House aims to meet all of the United States' aviation fuel demand with SAF by 2050 and to supply at least 3 billion gallons of SAF annually by 2030.

Drax said the agreement could pave the way for it to become a strategic partner in the project and supply two additional Pathway SAF projects.

Drax added that it could make a potential investment in the form of a convertible loan note of up to $10 million in the project, but no investment decision has yet been made.

(Reporting by Nina Chestney. Editing by Mark Potter)