European jet fuel prices remain at summer highs above the five-year average of the years preceding coronavirus, as support from logistical issues arising from the continued impact of the pandemic and tighter jet supply from European refineries due to Western sanctions on Russian crude and feedstocks more than offsets downward pressure on demand from high airline ticket prices, a weak Chinese economic outlook and fuel efficiency gains in aircraft.
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Register NowPlatts, a part of S&P Global Commodity Insights, assessed the CIF Northwest Europe jet fuel cargo flat price at an average of $853.35/mt for the months of June, July and August, compared with $558.52/mt for the same three months over 2015-2019.
Jet markets in Central and northeastern Europe are suffering from a lack of the Russian crude on which the region was previously reliant, according to airline sources, causing bottlenecks in alternative supply lines, pushing fuel procurement costs up and dampening demand, with some refineries resorting to lower throughput and reduced runs.
The PCK refinery in Eastern Germany, for example, had only managed to replace 70% of its Russian crude slate and as a result was running at a similar production rate, one airline source said.
"Although the refineries are trying to increase this, the pipelines are not bringing any crude which means that it is subject to the same logistical [constraints] as refined product imports," he said.
Jet has also struggled to secure placements on the CEPS pipeline used to transport product from the Amsterdam-Rotterdam-Antwerp supply and logistics hub down to inland Germany and Switzerland.
"The low jet demand during coronavirus and last year has meant that the pipeline is predominantly used to transport mostly diesel now," the source said, adding that logistical issues would likely continue to affect the market into 2024.
Finland has also been affected by the lack of Russian crude, with a second airline source noting that refineries had begun to source barrels from the North Sea. Finland imported 81% of its crude slate from Russia in 2021, which fell significantly in 2022 and ceased in July of that year, according to data from the International Energy Agency.
In 2020 and 2021 respectively Finland imported 187,000 and 131,000 seaborne barrels of crude from Russia, according to data from shipping tracking data firm Kpler. In 2022 Finland replaced this with 141,000 barrels from the North Sea.
Because of the lack of crude, and rising demand in the aviation sector this summer, the second source said his company had begun sourcing pre-made jet from the ARA hub, drawing more product away from Central European markets. "There are different ways to get product into the market, but these are not efficient," he added.
Asia flight demand soft
Although European air travel saw a jump in demand in June, traders said this had been capped by weaker-than-expected Chinese demand for international flights.
The outlook for China's economic recovery has been far from clear this year, with the manufacturing Purchasing Managers' Index and other economic indicators contrasting with a strong recovery in oil demand, according to the International Energy Agency. Overall, market sources think Chinese jet demand is unlikely to surge in the coming months.
"High commodity prices are deflating China right now," a third airline source said. "You can have one but not the other. Either we have high prices and low growth or lower prices and potentially higher growth."
Weak demand from Chinese fliers has been underlined by airport passenger traffic statistics. Heathrow airport reported 950,990 passengers arriving and departing from Asia in July, 11% lower than passenger traffic in pre-pandemic 2019. In contrast, EU passengers were only 5% lower in July in the same comparison while US passengers rose 12%. Statistics from Amsterdam's Schipol airport, which don't break down international travel to and from Asia, similarly showed that intercontinental passenger numbers were 11% lower in July.
That said, jet demand continues to recover in Europe, albeit slowly, with market sources saying it has reached about 80%-85% of 2019 levels.
"Jet demand has been recovering, but recovering at a very average speed. It's still quite under [2019 levels] because less Chinese people are traveling. Also, since Covid, [flights] are expensive," a jet fuel trader said.
Fuel efficiency
Another snag for jet demand recovery is the strong momentum in the sector to move to more efficient aircraft and sustainable fuels.
Efficiency gains were particularly strong during the coronavirus pandemic, when low flying demand allowed airlines to retire a large part of their older fleet. According to the third airline source, efficiency gains were around 5%-10% up on 2019, meaning flying demand would have to rise by the same amount to require the same fuel burn.
The global airplane fleet is around 80% more fuel efficient than 50 years ago, the International Air Transport Association said in a report this year.
"Each new generation of aircraft burns 15%-20% less fuel per passenger kilometer than the aircraft it replaces thanks to more fuel-efficient engines, improved aerodynamics, and the use of more lightweight materials, for example," the association said in February.
"People haven't taken into account a lot more efficiency in the system," the third airline source said. "You can trace it back for more than 20-30 years but with the capex that jumped [during the coronavirus pandemic] to put more efficiency in planes suddenly, even if passengers increase, we will still have to weigh in the efficiency gains."
Sustainable aviation fuel on the other hand, has played a relatively small part in the jet market so far. The latest report from IATA, published Sept. 1 highlights that SAF fuel production remained very low over the course of 2022, at around 0.1% of the total volume of jet fuel, although the market saw a "remarkable fivefold growth over the past three years, indicative of robust demand."
Platts assessed the SAF CIF ARA flat price at $2,987.75/mt Sept. 4, up $1.25/mt on the day.