The volatility of fuel
Low
inventories and a harsh winter could affect jet-A supply,
prices
By John F. Infanger & Jordanna Smida, Editorial Staff
November 2000
That
is the overriding message offered by oil industry officials
during discussions in October at this year?s National
Business Aviation Association trade show in New Orleans.
It all centers around the futures market, and as oil
companies look down the road they see potentially cheaper
per barrell prices for crude. ?It?s a product-driven
market,? says a supplier. ?The futures market tells
us the price will go down; that?s the reason for low
inventories.?
Says
another, ?Just-in-time inventory is alive and well in
the oil industry.? For diesel, from which jet-A is derived,
there is currently about a 23-day supply in the U.S.
system; traditionally, say suppliers, inventory on hand
has been around 38 days.
This
becomes even more pertinent when oil companies look
at their bottom lines, which have turned lean in recent
years because of the relatively low price of a barrel
of oil globally. (In fact, say officials, in 1980 dollars
fuel costs less today in the U.S. than 20 years ago.)
Oil companies have had to become more efficient —
a driving force in the mergers of Exxon and Mobil, BP
and Amoco, and the proposed buyout of Texaco by Chevron.
?Volatility
is the name of the game,? explains one official. ?We
have never seen the volatility (of price) over such
an extended period of time.?
In
turn, the situation with the long-term market price
of crude oil has led to what some term the extraordinarily
low inventories. This raises a concern for aviation:
Should a severe winter hit the nation, jet-A producers
could be forced to pull product from the jet-A pool
and redirect it for heating oil.
Market
uncertainty is a continuing theme with oil company officials,
and for the first time in years the word ?allocation?
reentered the discussions with several suppliers. Others,
however, are more optimistic that supply will not be
a problem for the foreseeable future.
Compounding
the supply question, according to an official, is the
fact that it is extremely difficult to build a new refinery
in the U.S. today, because of cost and environmental
concerns. Thus, when one refinery shuts down for something
as routine as maintenance, it can have a farther reaching
effect than in years past.
Taking
a more optimistic view, some officials see the higher
price per barrel stabilizing, which will lead to improved
profitability for suppliers as well as creating incentives
to produce domestic crude. Long term, this should lead
to stability of supply and price.
Regarding
avgas, suppliers do not see an immediate no-lead alternative
on the horizon. The primary challenge there, they say,
remains with the engine technology.
A concern with avgas, however, is that the alkylation process associated with its manufacture is also used for creating ?boutique fuels,? such as the reformulated autogas used in various cities around the U.S. Alkylates are unusual, explains an official, because they offer high octane with lower vapor pressure, important for aircraft engine performance.
