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Commodities 2021: US jet demand, supply chain challenges lay ahead in 2021

Highlights

Atlantic Coast’s new supply chain in the balance

Global industry recovery expected in 2024: IATA

CORSIA pilot phase to launch in 2021


New York —
The US jet fuel market will be forced to evaluate their 2020 pandemic-induced supply chains in the new year as airlines and refiners grapple with bruised passenger confidence and sustainability commitments.

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While S&P Global Analytics expects global jet fuel demand to “rebound sharply” in 2021 by 1.5 million b/d, this growth would only represent half of the losses experienced in 2020 as the coronavirus ravaged air travel demand, and by extension, jet fuel consumption and altered pricing dynamics.

In the US, demand destruction was most pronounced at the end of the first quarter, with passenger throughput at airports down by a staggering 94.89% between March and April, according to data from the Transportation Security Administration. Passenger volumes fell by as much as 300,000 individuals per day during this period—sinking to just 87,534 passengers— following the implementation of sweeping travel restrictions to and from the US.

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With consumer confidence decimated and routes slashed, airlines’ monthly consumption of jet fuel plummeted, falling 62% on the month in April to 11 million barrels, according to data from the Bureau of Transportation Statistics. This marked a 70% decline from the same period in 2019 and the weakest consumption since the BTS began collecting data in 2000.

Even as they scrambled to minimize jet production, refiners’ reduction of output to all-time lows failed to outpace the nosedive seen for jet fuel demand and arbitrage economics discouraged refiners on the Gulf Coast from sending jet up Colonial Pipeline to end users along the East Coast.


Foreign imports to New York Harbor double

The industry’s reaction to these unfavorable arbitrage economics will present the jet community with fresh challenges in 2021, with the retraction of these cobbled supply chains dependent on the degree to which fuel demand recovers.

While the fallout from the coronavirus upended dynamics for the jet fuel market in all regions of the US, the Atlantic Coast’s inability to supply itself with sufficient volumes of fuel rendered it particularly susceptible to supply chain alterations and price volatility.

One of the clearest indicators of volatility for the region has been the dislocated relationship between prices for jet fuel barrels taken off Colonial Pipeline and New York jet fuel for Buckeye Pipeline.

Of the 250 assessments Platts published for offlines and Buckeye differentials in 2019, the former never held a premium to the latter, instead maintaining a discount of 25 points for 201 sessions—or 80.4%–of the year.

In 2020, however, the market has seen exceptional volatility in the spread, with offlines barrels carrying a premium to Buckeye for much of the year, driven by unfavorable arbitrage economics and strong demand for unrestricted barrels.


With New York at one point the epicenter of the global coronavirus pandemic, demand in New York Harbor plummeted, rendering Line 3 barrels destined for Buckeye less attractive than unrestricted barrels that could have been directed to stronger demand centers along the mid-Atlantic.

With this shift, supply chains for the Northeast were re-imagined as imports to New York Harbor nearly doubled on the year. As of mid-December, 25 vessels had discharged a total of 6.65 million barrels of jet, according to US customs data. India was the top country of origin, accounting for one million barrels, followed by Qatar and South Korea.

Customs data indicates 16 vessels discharged a total of 3.42 million barrels of jet in the region in 2019, with Canada, South Korea and Japan the top countries of origin.

Stronger jet imports to New York Harbor could be challenged in 2021 if arbitrage economics incentivize the shipment of fuel up the Colonial Pipeline. Such a change, however, would be heavily dependent on air travel demand and passenger confidence.

The International Air Transport Association estimates that the global industry will not see a full recovery until 2024.

Industrywide sustainability commitments to materialize in 2021

Despite the fact that the coronavirus has dealt an unprecedented blow to the aviation industry, airlines have reiterated their commitments to sustainability throughout the fallout, suggesting green shoots—and green fuels—are on the horizon in 2021.

A key component of airlines’ sustainability toolboxes is sustainable aviation fuel, carbon-based jet fuel’s green counterpart that can be “dropped in” to existing infrastructure to reduce aircraft emissions.

According to cost-based calculations launched by Platts on Sept. 21, US West Coast SAF is approximately 3.1 times more expensive than Los Angeles jet fuel, highlighting limited production as one of the key hurdles in widespread adoption of the fuel.

SAF will play a key role in the Carbon Offsetting and Reduction Scheme for International Aviation, whose voluntary pilot phase commences in 2021. Under this program, monitored by the United Nations International Civil Aviation Organization, the global aviation industry aims to half its 2005 emissions by 2050.

Under CORSIA, the airline industry was the world’s first industry to agree to a market-based measure to tackle its carbon footprint.

While the US jet fuel market faces demand and supply chain challenges in 2021, progress on decarbonization is likely to showcase how adaptable and innovative this industry is.

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