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oil market dynamics

Jet Fuel Supply Crunch Looms Before SAF Scale Up

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An Energy Intelligence Forum 2021 panel on trading commodities during the energy transition saw the bosses of the world’s three largest trading companies still bullish on conventional jet fuel’s long-term demand prospects and warning of more price volatility in the long term as the energy transition gathers momentum.

Vitol CEO Russell Hardy sees demand for fossil jet fuel still rising through the 2030s and well into the 2040s, long after demand for gasoline and diesel tops out between 2026-28 and even after demand for petrochemical feedstocks peaks sometime in the 2030s.

Gunvor's Torbjorn Tornqvist was similarly bullish about fossil fuel demand while Trafigura’s Jeremy Weir warned that oil demand would be slow to decline even after the peak, leaving a "fat tail" of fuel demand that traders could struggle to supply.

Investment in new technology is already outpacing spending on crude oil production and conventional refining. Weir noted that European refiners in particular are busily transitioning out of oil and into renewables.

On Covid demand destruction, Tornqvist flagged the current 2.5 million-3 million barrels per day of oil demand still missing this year compared to 2019 levels, most of it jet fuel with international air travel still mostly grounded. Hardy put the current hole in global jet fuel demand at 2 million b/d but was convinced airline fuel demand would exceed 2019 levels by next summer.

Decarbonizing the Downstream

Problems meeting still-growing demand for liquid fuels after the closure of some 4 million b/d of refining capacity through the pandemic was also addressed in a session on decarbonizing the downstream. Adnoc’s Downstream Executive Director Khaled Salmeen flagged that with jet demand still missing, refinery margins remained under extreme pressure.

Repsol’s Head of Refinery Transformation Berta Carbello said the Spanish firm would be producing 1.3 million tons per year of renewable fuels by 2025, rising to 2 million tons/yr by 2030. Repsol’s 250,000 tons/yr SAF and biodiesel (HVO) plant at Cartagena should start up in 2023. Much has already been done by the refining industry to reduce Scope 1 and 2 emissions from fuel production and its transportation, but now the industry needs to tackle Scope 3 or the carbon content of fuels.

The European major expects SAF to comprise most liquid fuels demand by 2050, and has designed a net-zero refinery to help meet it.
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