Jet fuel is poised to remain the fuel of choice for aviation, despite the fact that its growth demand is bound to diminish over time. In its latest weekly report, shipbroker Gibson said that “over the past 3 years jet fuel demand has taken a hammering, with the product by far the most impacted by the pandemic for obvious reasons. However, whilst jet fuel was hardest hit, it was also the fastest growing product group in 2022 and is predicted to continue that trend this year. Aviation will contribute 1.1mbd (50%) to global oil demand growth this year – more than double any other product. China will contribute nearly 90% of this growth, with pent up consumer demand after years of strict lockdowns fuelling the increase in both domestic and long-haul aviation”.
According to Gibson, “in China, domestic flight numbers have largely recovered to pre covid levels, however long-haul flights in April were still just 69% of 2019 levels, yet this is where the bulk of the demand growth will come from, with intercontinental aviation being a bigger contributor of jet consumption compared to regional travel. Yet, despite this strong rebound, China is forecast to remain a net exporter of jet fuel, with volumes for the year to date higher than the corresponding period of 2022, although any near-term upside in exports is likely to be limited given domestic demand”.
The shipbroker added that “outside of China, aviation growth rates have slowed with Western economies further along the recovery curve. Ahead of the peak European summer travel period (typically June to September), sales have reached 91% of 2019 levels, whilst in the US, ticket sales have reached 99% of pre pandemic volumes, according IATA. In Europe, travel season will see increased consumption over the summer, with exports to Europe from East of Suez typically peaking in Q3 as domestic inventories draw down. Volumes could find further support given European refinery closures since 2019, although there will be limited impact from Russian sanctions as the country exported only negligible volumes to Europe”.
Gibson also mentioned that “in the long term, jet fuel demand is forecast to continue growing all the way to 2050, with few alternatives to power international aviation. However, the growth rates will slow down dramatically, with 2050 demand reaching around 11.8mbd, implying an annual average growth rate of 170kbd. Sustainable aviation fuel (SAF) will eat into that demand growth, with SAF representing the only viable alternative for aviation to kerosene-based jet fuel at this time. Initiatives such as the EU’s RefuelEU programme targets a 6% blend ratio of SAF into jet fuel by 2030, whilst Japan is mulling 10% blend ratios by 2030. However, it is uncertain whether there will be sufficient global supply to meet these targets, with Shell recently cancelling a 550,000 tonnes/year project in Singapore, ironically citing demand concerns. Other fuels such as hydrogen are being developed, yet these face even greater challenges in achieving large scale uptake and are yet to be proven”.
“Thus, whilst jet fuel demand will inevitably fluctuate with macroeconomic trends, in the long term, a lack of viable alternatives at scale and a growing population bode well for the fuel’s long term outlook. Even if SAF grows faster than anticipated, it will still need to be transported on tankers to end users, just like conventional jet fuel is today”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide