Crude oil prices staged a recovery of sorts yesterday (January 21, 2016) after a crushing first two weeks of the year. But even if this proves to be the turning point, a lot of damage has been done to crude and refined product prices along the way. Jet fuel is a case in point. The U.S. Gulf Coast spot price for kerosene-type jet fuel closed on Wednesday (January 20, 2016) at $0.78/Gal - the lowest it’s been since September 2003, and barring a dramatic recovery in crude oil prices, the refined petroleum product, that is mostly used for aviation and by the military, will remain cheap this year. That’s good news for the airlines and, one would hope, for air travelers too. But it’s bad news for refiners because of narrowing jet margins over crude oil. Today, we examine the global market for jet fuel, and how it’s affecting U.S. refiners.
Several major airlines have been highlighting their efforts to develop alternative fuels for powering jets. Many of them are “biofuels” derived from organic waste, woody biomass or cooking oil; another (backed by Sir Richard Branson, founder of Virgin Atlantic) is produced by using a microbe to ferment captured carbon-monoxide and carbon-dioxide waste gases into ethanol and upgrading the ethanol into jet fuel. (You’ve got to admire the guy’s outside-the-box thinking. Don’t forget, his Virgin Records signed the Sex Pistols when no one else would touch them.) But at best these efforts over the next few years are likely to garner only a tiny sliver of the total jet fuel market, which from the beginning of the jet era 70-odd years ago has been the sole domain of kerosene-based jet fuel, also known as kero-jet or jet-kero. Kero-jet is produced from crude oil at refineries primarily through atmospheric distillation (see Complex Refining 101 Distillation). It then goes through various treatments to remove unwanted elements such as sulfur, nitrogen and metals, resulting in a pure, clean-burning fuel. Data from the Energy Information Administration (EIA) shows that average U.S. refinery yields of jet-kero have been between 9 and 10% of refined product output consistently since the early 1990’s.
“Jet A” is the kero-jet specification used in the U.S.; it has a freezing point of minus 40 degrees Fahrenheit; just to be different, everyone else (except for Russia and the other former members of the U.S.S.R.) use “Jet A-1,” which has an anti-static additive and whose freezing point is minus 47 degrees Fahrenheit. (The former Soviet countries use TS-1, a higher-octane form of vodka. Just kidding. Actually, TS-1 is just a more volatile form of kerosene.)
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