The Question of Supply
In Miami, jet fuel reps discuss the future; cost of storage; ATA 103
By John F. Infanger, Editorial Director
March 2001
MIAMI — Several hundred representatives of the oil industry, distributors, FBOs, and others convened here in January for the 3rd annual International Jet Fuel Conference & Exhibition, hosted by the Armbrust Aviation Group, publisher of the Jet Fuel Report.
The future of product supply
was at the top of the agenda at the conference, which coincided with the
release by the Department of Energy it’s own projections. In sum,
the DOE expects a fairly stable supply and pricing environment through
2020, despite the experience of recent price spikes which saw crude go
from $10.50/barrel in January 1999 to $30/barrel within a few months.
Much of the recent turmoil in pricing, says
Mark Wagner, who heads up Phillips 66’s aviation department, can
be attributed to the Asian/Thai economic crises in the mid-90s. It was
the Asian markets which had driven up demand on the supply side. The Asian
downturn triggered a reaction by OPEC nations in an effort — largely
successful — to drive up prices to support their own economies. Says
Wagner, "OPEC has never been this well united."
To appreciate the short- and long-term history
of the oil industry, say insiders, one needs to understand the economies
of the industry. That is, in changing times where do the players in the
oil industry place their resources, their dollars?
Another key factor impacting the downstream
side of the business — refining and distribution, and subsequently
jet fuel — is the fact that in the U.S. many such suppliers have
backed off in favor of exploration, say sources. Also, the U.S. environmental
movement has essentially thwarted expanding into downstream — it
is difficult to get built a new refinery, pipeline, etc.
(A significant, and contrary, development
following the conference was the February 5th announcement that Phillips
Petroleum Company would acquire refining company Tosco Corporation for
$7.49 billion. Phillips, like much of the U.S. industry, had been moving
away from refining and marketing of supply, according to sources.)
Doe Projections
In its Annual Energy Outlook 2001, DOE forecasts
stable prices for the next 20 years despite a projected demand rise of
some 55 percent. OPEC production is expected to nearly double during that
period, from some 30 million barrels per day to 57.6 million. Non-OPEC
oil production is projected to rise from the current 44.8 million barrels
per day to nearly 60 million.
U.S. oil production is expected to continue
to decline at an annual rate of 0.7 percent, and by 2014 OPEC will account
for more than 50 percent of U.S. imported crude, says DOE.
The Jet Fuel Report, in its analysis of
the DOE findings, criticizes the fact that the agency takes a "business
as usual" approach and fails to take into account world political
hot spots that also supply significant amounts of crude oil.
North America is expected to lose its position
as the number one refiner to Asia within the next five years. U.S. refining
capacity will grow only modestly, says DOE.
Consumption of crude’s light products,
including jet fuel, will continue to grow while, at the same time, the
cost to produce such products grows as well. Processing costs are projected
to grow some six cents per gallon from 1999-2020. During the period, jet
fuel consumption should grow by 1.2 million barrels per day.
To paraphrase Jet Fuel Report: Will aviation
concerns grow as dependence on imported jet fuel rises? And, will demand
in other countries lead them to be less willing to export product to the
U.S.?
Role of Airports
Jonathan Howe, director general of Airports
Council International, based in Geneva, Switzerland, told the conference
that individual airlines are having a declining impact on airports as
the latter move away from exclusive agreements with carriers. "I
think this will have some impact on your business," he says.
Howe says that airports, particularly in
Europe, are looking more and more at fuel as a potential profit center
but adds, "the airports are not going to want to antagonize their
best customers." In the final analysis, he says, the end result will
come out of constructive negotiations.
Gold-Plated Farms
A general discussion regarding airport fuel
facilities led to a consensus that too frequently airports over-build
facilities. According to conference sponsor John Armbrust, a higher cost
for fuel farm infrastructure leads to increased costs to airlines, higher
customer rates, and ultimately a negative impact on the use of the airport
and its facilities. The more a facility costs, the more it takes for upkeep
and debt amortization.
A fuel facility is justified only if the
costs are reasonable and reconcilable, he says.
Other concerns raised about fuel farm construction
at airports:
• Among air carriers, the number of
staffers who can offer valuable input for a fuel farm is lessening.
• To help contain costs, engineering
should be done up front. Often, there’s a "rush atmosphere"
to get the farm up and running.
• "What we’re all saying
is you (airports) have the wrong process," says Armbrust. That is,
it is airports, authorities, and politicians that generally drive such
an infrastructure building process without first consulting the airlines,
engineers, designers, manufacturers, etc.
ATA 103
A panel discussion on fueling operations
spurred a lively discussion of Air Transport Association rule 103, which
the panel defined as an attempt to set guidelines for fuel quality when
the major fuel suppliers began getting out of the U.S. airport market.
ATA 103, say sources, assumes a separate
refueler maintenance program will be put in place by an operator. In fact,
they say, many refueling companies use it to serve as a guide for refueler/chasis
checks.
Agreement was reached that some sort of
standard for refueler maintenance should be set, perhaps by another trade
association which represents such operators. At the least, say sources,
ATA 103 should clearly say what it is not.
