Question

federal aviation purchases 16600 gallons of aviation fuel

Answer 1

Jet fuel has accounted for approximately 10% of U.S. petroleum refinery production for the past two decades. Production is concentrated by company and geographic region, with Exxon Mobil, Chevron, and BP among the top producers and Texas, Louisiana, and California among the top producing states. Refiners’ decisions about jet fuel production volumes encompass purchasing capital equipment, selecting crude oil, and producing the desired type and quantity of products. Biomass-based jet fuel production at scale would need to enter this supply chain.

Distribution of jet fuel in the United States primarily involves transport from the Gulf Coast to other regions. Transportation of refined petroleum products (which include jet fuel) is accomplished via pipeline (60%), ocean-going tankers and barges on inland waterways (30%), tanker trucks (5%), and rail (5%). At each airport, fuel supply chain organization and fuel sourcing could differ with regard to the role of oil companies, airlines, airline consortia, airport owners and operators, and airport service companies.

Major jet fuel purchasers are airlines, general aviation operators, corporate aviation and the military, with most of the jet fuel in the United States being used for domestic, commercial, and civilian flights carrying passengers, cargo, or both. Commercial aviation fuel efficiency has improved dramatically over time, largely due to aircraft and engine upgrades and operational and air traffic control improvements. This has resulted in an overall decline in U.S. jet fuel consumption during the past decade.

The report addresses historical and projected fuel price trends, as well as airline strategies to mitigate price risk. Jet fuel prices generally correlate with prices of crude oil and other refined petroleum products, such as diesel. Increasing prices and the persistent price volatility of jet fuel markets impact airline industry finances in the United States. Jet fuel represents the single largest operating expense for airlines (approximately one-third of airline operating costs), and fuel price increases are not readily passed on to consumers.

Airlines use various strategies to manage aviation fuel price uncertainty, including financial hedges, increased vertical integration, and adjustments in aircraft utilization and size. Investments in alternative aviation fuel could be a mechanism to diversify exposure to the price of petroleum. While the first set of strategies aims to manage the current petroleum-based aviation fuel price, the use of alternative aviation fuel would serve to diversify the fuel mix. If a diversified fuel mix were to decrease fuel price volatility or reduce long-term fuel price increases, potential benefits include reduced hedging costs, increased price certainty, and lessened fuel costs. This diversity could allow airlines to become more consistently profitable and to make other investments in their business. The potential of biofuels to reduce fuel price volatility or long-term fuel price increases is not evaluated here.

The report outlines the environmental basis for considering biofuels for aviation, but it does not quantify the environmental effects of different options or otherwise evaluate these opportunities. The aviation industry has established goals to mitigate its greenhouse gas emissions for a variety of reasons, notably regulatory and financial risks. These goals target carbon neutral growth starting in 2020.

Biofuels have potential to meet aviation industry needs, possibly including managing risks of upward fuel price trends and fuel price volatility and risks associated with greenhouse gas emissions. The aviation industry has taken steps to explore this potential through participation in alternative aviation fuel research, development, and demonstration. Initial steps toward using biojet include development of standards. Biofuels that currently have ASTM standards for aviation use include fuels based on two processes: Fischer-Tropsch (FT) and hydroprocessed esters and fatty acids (HEFA). Standards development is underway for other processes, and biofuels are being used in demonstration flights.

The aviation fuels market could use biofuels to reduce greenhouse gas emissions and mitigate long-term upward price trends, fuel price volatility, or both. This report offers a background on the aviation industry, primarily for biofuels stakeholders with an interest in environmental, economic, and financial potential.

Biofuels—fuels made from biomass—for aviation fuel markets could have the potential to address needs and objectives of both biofuels and aviation stakeholders. This report is intended to provide a snapshot of the aviation industry and its fuel market for biofuels stakeholders who may be unfamiliar with the U.S. aviation sector but are interested in whether and how biofuels might enter the aviation fuel market. The report does not assess the technical aspects or production potential of biofuels for aviation, nor does it address in detail other alternative aviation fuels or combinations of biofuels with fossil fuels.

Biofuels have potential to meet aviation industry needs, possibly including managing risks of upward fuel price trends and fuel price volatility and risks associated with greenhouse gas (GHG) emissions. The aviation industry has taken steps to explore this potential through participation in alternative aviation fuel research, development, and demonstration. Through these activities, additional potential benefits of biofuels have been identified, such as chemical properties that could improve fuel performance or complement other alternative fuels. Public and private initiatives have targeted goals for biofuels in aviation, including support of national goals, a Federal Aviation Administration volumetric goal, and goals of the Commercial Aviation Alternative Fuels Initiative (CAAFI), as described in the Farm to Fly report (U.S. Department of Agriculture et al. 2012). The CAAFI summarizes actions that the aviation industry might take to advance development of aviation biofuels (Miller and Heimlich 2013). The International Air Transport Association regularly tracks the status of alternative aviation fuels (International Air Transport Association 2013).

For the biofuels industry, aviation fuel markets could provide an outlet for biofuels producers that might be attractive relative to current markets. Today, the single largest domestic biofuel is ethanol, which is blended into motor gasoline for cars and trucks. However, ground transportation biofuel markets face declining gasoline sales, limits on ethanol blending in gasoline, market risks for higher ethanol blends and hydrocarbon fuels, and competition from non-liquid fuels (natural gas, battery-electric, or fuel-cell hydrogen-powered vehicles). Aviation fuel markets are likely less vulnerable to competition from non-liquid fuels (U.S. Department of Agriculture et al. 2012) because the benefits of greater energy density of liquid fuels are substantial in aviation due to the energy efficiency implications of hauling the fuel itself and the physical constraints of airplane design and performance. Another feature of aviation fuel markets that is relevant to biofuels producers is the concentration of jet fuel demand at major airport hubs (U.S. Department of Agriculture et al. 2012). This concentration could simplify supply chain control and logistics, potentially facilitating biofuels supply to these locations, although possibly also raising concerns about market power of the fuel purchasers. The challenges to biofuels entering aviation fuel markets are numerous and significant and include business and financial risks of delivering a specialized, highly regulated fuel at a competitive price to a financially volatile industry. Neither these potential benefits nor the challenges are assessed in detail in this report. The CAAFI provides guidance about the development of this business, including airline requirements for fuels purchases and discussion of business risks (Miller and Heimlich 2013).

It could be technically feasible for the U.S. biofuels industry to grow sufficiently to supply a significant share of U.S. jet fuel and to diversify its production into the jet fuel market. The biofuels industry as well as government efforts are pursuing growth strategies; for example, theU.S. Department of Energy’s Multi-Year Program Plan (Bioenergy Technologies Office and Energy Efficiency and Renewable Energy 2013) provides one summary of a government biofuels program. Policy and technology progress could influence the future development of the U.S. biofuels industry. The Energy Independence and Security Act of 2007 (EISA) established a target of 36 billion gallons per year (860 million barrels) of renewable liquid transportation fuel in the United States by 2022 (U.S. Congress 2007). New technology could enable an advanced biofuels industry based on conversion of cellulosic biomass. Products of an advanced biofuels industry could include hydrocarbons that can be integrated into existing petroleum-based jet fuel delivery systems (Bioenergy Technologies Office and Energy Efficiency and Renewable Energy 2013). Increasing prices of jet fuel and continued price volatility pose challenges for the U.S. airline industry, with real prices nearly tripling from approximately $1.30/gallon in 2000 to approximately $3.00/gallon in 2012 (Research and Innovative Technology Administration 2013). Prices are sufficiently volatile that many airlines seek to mitigate fuel price risks through various financial measures, such as fuel price hedging. In addition to the challenge of increasing and volatile fuel prices, the aviation industry faces environmental concerns associated with aviation fuel, including air quality impacts and GHG emissions. Concerns about climate change have prompted regulatory measures in Europe and industry commitments to reduce emissions (Meltzer 2013). The use of biofuels could help address these concerns.

Using biofuels for aviation has the potential to offer a new market for the biofuels industry, while easing financial and environmental challenges in the aviation industry. The overall market size and the structure of the aviation fuel supply chain shape the opportunity for biofuels. Understanding the basics of current production, distribution, and consumption of aviation fuel could help analysis of whether and how biofuels could be used. In addition, effects of biofuels on price and price volatility in the aviation fuel market would be a critical consideration for their adoption. This report provides a background on these topics. It offers an overview of the aviation fuel market (Section 2), including basic information for considering biofuels entry into the aviation fuel market: an overview of production, distribution, and consumption in the current aviation fuel industry, as well as descriptions of market participants. The report addresses historical and projected jet fuel price trends (Section 3), as well as airline strategies to mitigate to price risk (Section 4). It outlines the financial and social basis for interest in biofuels in aviation (Section 5), but it does not address the technical, economic, or market potential of biofuels in that market. It also does not evaluate costs and benefits of biofuels for aviation, which would include environmental as well as financial and economic metrics. The conclusions (Section 6) offer perspectives on the opportunities and challenges outlined in in the report.