Russian Military Boosts Jet Fuel Offtake for Ukraine War

Moscow's escalation of the war in Ukraine is swelling its need for jet fuel supplies. Russia’s armed forces have boosted purchases of jet fuel in the first half of October, which have soared to their highest level since President Vladimir Putin launched the invasion of Ukraine in late February. Data seen by Energy Intelligence indicate that railroad-based offtake of jet fuel by federal agencies, a proxy category for the defense ministry, amounted to 82,000 barrels per day, or 10,000 b/d more than in September.

Building Strategic Stocks

The previous high was posted during the second full month of the war in April, when federal agencies purchased 78,000 b/d. It is likely that Rosreserv, the state-owned strategic reserve that also falls under the umbrella of federal agencies, could also be buying more jet supplies for storage. But analysts say these volumes are often resold to the defense ministry.

At the same time the commercial aviation sector continues to retrench into the domestic market as Russians are banned from traveling by air to Europe, the US and other parts of the globe. Higher military offtake coincides with a 13,000 b/d month-on-month reduction in rail-based jet fuel deliveries to the civil aviation industry in the same 12 days of October to a total 90,000 b/d. So far this year monthly rail supplies to civil aviation, which is expecting to handle 100 million passengers in 2022, are down 10% from 2021 after peaking at 103,000 b/d in September. In addition to rail deliveries, some jet volumes are sent to airports by pipeline and truck.

The Kremlin's need for more fuel supplies to ramp up its war effort are cutting into export flows. The data also show that exports of jet fuel shipped by rail plunged by 50% to 8,000 b/d in the Oct. 1-12 period compared to September. Novatek’s waterborne exports from its condensate splitter on the Gulf of Finland are believed to have held steady at about 18,000 b/d.

Higher military usage is propping up jet fuel production even as deliveries to airports for commercial purposes remain subdued. Overall jet fuel production totaled 195,000 b/d during the first 12 days of October. That's down a mere 4,000 b/d from September, when output reached its highest level so far for calendar 2022.

Both jet and diesel are the rainmakers for Russian refineries, which are staring into a bleak future after February 2023, when the EU bans imports of Russian petroleum products. The crack spread for diesel in a typical refinery in the western part of the country has hovered around $83 per barrel so far in October, and closer to $100 for winter diesel. Roughly a third comes from a state subsidy for domestic supplies of diesel.

The crack on jet fuel has averaged a steady 30,000 rubles per metric ton ($60/bbl) so far this month. Refineries are permitted to sell at high prices since the state compensates domestic airlines for each ton of fuel purchased. This subsidy is estimated at 15,000 rubles/ton ($30/bbl).

Middle distillates are the only part of the slate salvaging refining margins in Russia now that the government has decided to slash the subsidy on domestic gasoline and naphtha sales to Europe. If jet and diesel cracks collapse in early 2023, Russia’s refineries will have no choice but to dramatically reduce throughput.

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