Viewpoint: European jet supply to tighten

European jet fuel supply looks set to tighten in the first quarter of 2020, as a result of refinery outages in the Mideast Gulf and the arrival of the International Maritime Organization (IMO) marine-fuel sulphur cap.

Refinery maintenance in the Mideast Gulf may deplete regional jet fuel inventories, which would limit availability for export to Europe. The Mideast Gulf is the biggest regional jet supplier to Europe, so any fall in output there is likely to tighten European availability.

Abu Dhabi's state-owned Adnoc plans a turnaround at its 417,000 b/d Ruwais refinery in the first quarter of 2020. The UAE is Europe's largest external supplier of jet fuel, according to EU statistics agency Eurostat.

In Saudi Arabia Satorp, a joint venture between Total and Saudi state-owned Aramco, plans maintenance at its 460,000 b/d Jubail refinery in January-February. Yasref, Aramco's joint venture with Chinese state-controlled Sinopec, is likely to begin a turnaround at its 400,000 b/d Yanbu refinery in the first quarter of 2020. Saudi Arabia is Europe's second largest external supplier of jet fuel.

Supply tightness in the Mideast Gulf could begin to ease later in the year, when new refinery projects will come on stream. Kuwait's state-owned KPC will reach on-specification output from its clean fuels project at the 265,000 b/d Mina Abdullah and 440,000 b/d Mina al-Ahmadi refineries in the third quarter, Dubai's state-owned Enoc will complete the Jebel Ali refinery expansion from 140,000 b/d to 210,000 b/d by the end of this year, and Aramco is scheduled to start production at its wholly-owned 400,000 b/d Jizan refinery in 2020.

Another factor likely to tighten jet supplies will come as refiners prioritize gasoil production in response to the IMO rules. Swiss bank UBS said the regulation will push European refineries' jet margins below those of diesel in 2020. But, there is some uncertainty about how refiners will tackle the IMO regulation. European jet prices would probably find support from any boost to global middle distillate demand from blending into the fuel oil pool as a result of the rule change.

Overall refinery throughput could rise in 2020. The IEA forecasts global runs at 83.2mn b/d, up from 82.2mn b/d in 2019, largely driven by a rise in China. On the other hand, the agreement by Opec and its non-Opec allies to deepen their production cuts in the first quarter of 2020 will reduce growth of refined-product output globally, which could support jet fuel prices in Europe.

Demand for jet fuel is likely to rise in 2020, but at a slower rate than in recent years. The International Air Transport Association (Iata) forecasts global airline fuel consumption will rise by 2.3pc to 371bn litres (around 6.4mn b/d) in 2020, up from 1.1pc annual growth in 2019 although still lower than the 5.2pc rise in 2018.

Demand was pressured in 2019 by the global grounding of the Boeing 737 Max fleet, which led European airlines Norwegian and Ryanair to temporarily reduce capacity. Boeing will suspend production of the 737 Max from January while it waits for the series to be re-certified. Jet fuel consumption would be boosted by the fleet being airborne again, albeit somewhat less pronounced for the European aviation industry because most 737 Max aircraft are used by airlines in the US or Asia-Pacific.

By Florence Schmit