Post-COVID supply chain issues and Ukrainian conflict fuels shortages and unprecedented fuel costs.
VIEWPOINT
While Jet-A Fuel prices in the U.S. have increased by almost 30% year over year, airports in the Northeast are facing never-before-seen fuel costs that are wildly out of sync with prices across the country. Fixed Base Operators (FBO) in the Northeast, such as in Boston and in New Jersey, have posted retail Jet A prices up to $11-$15 a gallon in the last few weeks of April, compared to $5-7 in the rest of the U.S. The causes of these increases are unlikely to be resolved in the coming months and will likely continue through the summer travel season, driving higher prices on commercial and private air travel. Airlines and airport trade groups petitioned the Federal Energy Regulatory Commission during the last week of April, imploring the federal government to step in to increase pipeline supply, which has faced critical shortages since 2020.
Lack Of Travel Shifts Refinery Behavior With the lack of air travel demand over the last two years due to Covid-19, Jet-A had been the least profitable product an oil refinery could produce.
Fuel prices are varying greatly by region. Credit: Jaromir Chalabala/Alamy
Many refineries diverted their focus during the pandemic to producing distillates like heating oil and road diesel instead of Jet A and blended it back into those products during that time—which was an ideal strategy during the pandemic when air travel demand was low. But with air travel reaching increasingly high numbers, the impact of these production changes is killing aircraft operators that haven’t hedged fuel prices and those based in the most-affected regions. Without markups, the cost of Jet A reached $7.61 a gal. in the New York harbor during the first week of April, or about $320 per barrel versus the overall crude oil high of $133 per barrel, according to Bloomberg. The price of Jet A in the Northeast, part of the U.S. Energy Information Administration’s PADD 1 region, is unique. New York Harbor (NYH) pricing is facing the most impact; Gulf Coast (USGF) pricing is high but not nearly at a crisis point like NYH and PADD 1. The differential between the Brent crude oil price, a benchmark for the crude oil market, and the New York harbor pricing was $100 per barrel in early April. Analysts do not see a reduction in future months. To make matters worse, Spring is traditionally a “maintenance” month for many refineries. With most families taking summer road trips and vacations and increasing fuel demand in the system, refineries have traditionally used the spring to slow down production to do repairs and prepare for the high demand period of summer, taking advantage of higher margins and increased demand. This spring, some refineries may be scrambling to increase production of Jet A to take advantage of skyrocketing prices, according to Reuters. Like most businesses, refineries are also feeling the forces of staffing and supply chain shortages, slowing down production and increasing costs. Those looking to charter ships to import barrels face skyrocketing costs as well; a ship carrying distillates from a refinery in Houston destined for Chile was reportedly chartered for $4 million, compared to the traditional rate of $1.3 million, Reuters reports. The Ukrainian Conflict Jet A fuel in the Northeast is traditionally sourced from the Colonial Pipeline (U.S. oil originating from Texas) and shipments of oil barrels from Europe, with shipments from the Middle East and the Far East making up the gap during higher demand periods, according to shipping analysts at Vortexa. With Europe imposing sanctions on Russian oil due to the conflict in Ukraine, shipments of oil barrels from Europe have virtually halted due to increasing needs in Europe. Shipments coming from the Middle East have been rerouted to Europe as well, leaving less oil to refine and less Jet A fuel stock available to US aircraft operators. Operator Impacts And Future Improvements In the last few years, private aircraft operators have become accustomed to operating with fuel prices from $3-5 per gal. Behind labor, fuel costs are the leading cost of aircraft operations and represent around 30% of operating costs. With prices increasing three-fold in the Northeast, aircraft operators will be passing on the costs to the end-user. A Gulfstream 650 may need more than 6,500 gal. on a fill-up. With a +$10 difference in Jet A cost in some locations, this could increase the cost of a charter trip by $65,000. Even on light jets, such as a Phenom 300, a full fill-up could cost $8,000 above expected rates. Charter users looking to reduce flight costs should ask about fueling in select locations or taking opportune fuel stops that can reduce trip costs. With prices so high, market forces will inevitably begin to equalize rates, but not soon enough. Tankers are being rerouted from Gulf Coast locations to the Northeast, and when pricing pressures reach a certain point, cargo ships will begin to return to New York harbor instead of Europe. That won’t happen anytime soon, however. The average cargo trip from the Middle East to New York harbor can exceed 30 days and with Russian oil sanctions, Europeans will continue to pay higher rates to divert fuel to the continent over the U.S. Europe is closer to large sources of oil imports like Asia and the Middle East, putting U.S. importers at a transportation cost disadvantage. Not to mention, ships that previously cost more than $1 million to charter can now exceed $4 million, further exacerbating price and availability, shipbrokers told Reuters. For now, operators should tanker fuel into the Northeast accordingly, prepare for unexpected fuel shortages and prepare aircraft owners for unusual costs as they navigate the next Covid-sparked supply chain challenge.
—Jessie Naor is COO of GrandView Aviation, a Part 135 charter operator. She serves on the executive committee of the Air Charter Safety Foundation and is vice-chair of the National Air Transportation Association’s Part 135 committee. She has participated in FAA rulemaking committees and received the NBAA’s Top 40 Under 40 Award in 2020.
