Free allowances for airlines under EU ETS under scrutiny: think tank

March 6, 2020

Scrapping free EU Allowances for airlines under the EU Emissions Trading System (EU ETS) is being supported by ten EU nation states, according to a statement by think tank Transport and Environment

At an EU Environment Council meeting held in Brussels on Thursday, official sources told T&E that Poland's proposal of scrapping free EUAs to aviation was supported by Denmark, the Netherlands, Sweden, Finland, France, Italy, Belgium, Hungary, Lithuania, as well as and the European Commission.

T&E added that "only Cyprus and Portugal expressed strong reservations," in a statement released Thursday.

Poland tabled the proposal to the Council of the European Union last month calling for "implementation of full auctioning for the aviation sector under EU ETS."

Poland said in its proposal that the aviation sector received free emission allowances worth about 800 million euro in 2019.

"The power sector does not receive free emission allowances," Poland said in its February 18 draft. "This is because the legislation recognizes that energy production is not at risk of carbon leakage. The aviation sector is not directly exposed to the risk of carbon leakage as flights  operated within the EU are accounted for by operators in the EU ETS system and cannot be replaced by the same service provided outside the territory of the Member States."

The think tank T&E said that the "surge" in EU support "to end free pollution permits is an important step to finally start tackling aviation emissions."

An ETS review scheduled for 2021 would be the EU's opportunity to adjust aviation's free allowances, it said. Only flights internal to the EU and the associated European Economic Area are covered by the EU ETS.

EUAs are the main trading unit in the European Union's cap-and-trade carbon market -- the EU ETS.

The December 2020 EUA futures contract settled on the Intercontinental Exchange at 23.81 euro/ton on Thursday, largely steady on the day.

CALL FOR JET FUEL TAXATION

T&E also said that removing free pollution allowances should go hand in hand with new jet fuel taxation - including bilateral agreements to tax kerosene while waiting for an EU-wide tax to be agreed. Currently there are no duties on jet fuel.

The EU Commission laid out its new EU Climate Law on Wednesday, which enshrines the EU's goal to become climate neutral by 2050 into law.At the same time, it also launched an "inception impact assessment" of the 2003 Energy Taxation Directive. The assessment period will run till April 1 followed by a public consultation in Q2 2020.

"The aim of the European Green Deal is to make the EU climate-neutral by 2050.

Revising the Energy Taxation Directive forms part of a group of policy reforms to deliver on this increased ambition," it said.

The adoption of the directive is set for Q2 2021.

 

--Reporting by Nandita Lal, nlal@opisnet.com;

--Editing by Tim Wright, twright@opisnet.com

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Covid-19: Forecasters Shave Q2 European Jet Demand Outlook by 50,000 b/d

March 6, 2020

The rapid spread of the coronavirus disease 2019 (COVID-19) across Europe has led forecasters to downgrade their regional jet fuel demand outlook for Q2 2020 by an average of 50,000 barrels a day (b/d).

IHS Markit will downgrade its middle distillates demand forecast through to the end of 2020, Eleanor Budds, associate director at IHS Markit, told OPIS.

"Our initial adjustments were based on external influences on Europe," Budds said. "Now we are looking at restrictions on movement inside Europe, closures of schools and businesses, and less mobility and spending due to a fear of infection."

IHS Markit now sees an overall European oil products demand decline of 400,000 b/d in the first quarter and by 100,000 b/d in the second quarter compared to last year, with the lion's share of the downside coming from a slump in jet fuel demand.

The outlook is also shared by the London-based energy consultancy Energy Aspects, which confirmed that it has downgraded its second quarter jet fuel demand forecast by 50,000 b/d. Their demand destruction outlook for March looks to be even steeper.

"Across February and March we currently estimate that we will lose 50,000 b/d of jet fuel demand from flight cancellations on just the Europe-to-Asia routes alone, with total European jet demand to fall by at least 100,000 b/d in March," Energy Aspects oil products analyst George Tix told OPIS.

Consultancy JBC Energy also told OPIS that they have revised their jet fuel outlook for three months to end of June 2020 down by 50,000 b/d. "For the first half of the year we see flat demand compared to our initial forecast of 20,000-b/d growth," JBC Energy analyst Moritz Brandhoff told OPIS.

Refinery maintenance in the second quarter could offer some support for jet fuel prices. Europe's largest refinery, the Shell-operated 404,000-b/d Pernis facility, is scheduled to undertake a major maintenance from May 6.

However, Energy Aspects believes that upside for jet prices from maintenance will be at least partially offset by an increase of jet imports from East of Suez regions.

Despite record low jet fuel refining margins, the analysts do not see run cuts in Europe being imminent and forecast that refiners will instead boost gasoline and diesel yields.

"We do not currently expect run cuts in Europe due to the jet weakness, as diesel and gasoline continue to carry the margin. However, if margins continue to fall further from the already weak levels, run cuts are a possibility," Tix said.

Travelers could shun public transport in favor of taxis and private cars in order to limit the chances of becoming infected by the coronavirus, which alongside lower prices, could add some upside to diesel and gasoline demand, Eleanor Budds forecasts.

European jet demand is heavily skewed to the downside, as a number of European airlines have announced cuts to their flight schedules. Finnair on Thursday reported cutting 1,100 flights to Asian destinations and Italy, adding to the cancellations announced by Ryanair, Easyjet and Wizzair earlier in the week.

Gain reliable jet fuel contract pricing with all-day trade visibility with OPIS450 Europe Jet Ticker. Begin a Free 14-Day Trial to the OPIS450 Europe Jet Ticker & Report

 

--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Anthony Lane, Anthony.lane@ihsmarkit.com

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Covid-19: Europe Airlines Face Uncertainty, Traders Fear Price Declines

February 27, 2020

Europe's airlines face uncertainty over the impact of the Covid-19 coronavirus, while jet fuel market sources expect prices to deteriorate further, plunging to a nadir in the second quarter.

Regional airlines Lufthansa, Scandinavian Airlines (SAS) and KLM have suspended flights to mainland China, where the virus originated, until end of March.

British Airways has suspended flights to the country until mid-April.

"Our economic outlook remains uncertain and the outbreak of the Covid-19 virus adds additional concerns regarding a slowdown in key economies that may impact customer demand negatively," SAS CEO Rickard Gustafson said in a statement Tuesday.

Italy is one of the worst-hit European counties, with 400 confirmed Covid-19 cases and 12 deaths. Two of the largest pan-European airlines - Easyjet and Ryanair - have both said that they are monitoring the situation across the region, but flights are currently operating normally.

Lufthansa said in a statement to OPIS that 13 of their long-haul planes have been grounded. The airline previously told OPIS that the company has reduced its jet supply offtake following the cancellation of flights to China.

"We may have to reduce our jet fuel offtake further due to the coronavirus, but nothing has been decided yet. It all depends on [the coronavirus] development," a Lufthansa spokesperson told OPIS.

Finnair told OPIS Thursday they too have reduced jet fuel offtake from their suppliers in response to the coronavirus outbreak.

Meanwhile, a further decline in jet fuel prices and passenger demand depends on how the coronavirus is contained in Europe, trading sources told OPIS today.

"The concern is more whether the effect in Italy will spread. It could go either way. If the situation worsens, it will impact public confidence and add more downside," one European jet fuel supplier told OPIS this week, a view echoed by other European jet fuel traders and brokers.

"I don't think we've seen the worst of the coronavirus yet," one broker said.

"There is no jet fuel demand and there is plenty of supply coming from East of Suez."

European jet fuel imports from East of Suez loadports that are due to arrive in March currently total some 2.1 million metric tons, according to IHS Markit-OPIS oil tanker tracking data.

Sources also told OPIS that refinery maintenance in the Middle East is drawing to a close, which could mean more jet fuel barrels pointing towards Europe.

"We will see jet prices go lower, the second quarter will be a complete bloodbath and then we'll see some recovery," another trader said.

European jet fuel prices plunged further this week. Jet fuel FOB barge outright prices plummeted to $486/ton and differentials sank to $16/ton above the front month low sulfur gasoil futures contract on the ICE bourse.

Outright and differential prices for jet barges in northwest Europe have fallen to the lowest levels since Autumn 2016, according to OPIS data.

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--Reporting by Selene Law, selene.law@ihsmarkit.com

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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Covid-19: Flight Cancellations Spread in Tandem, Asia Refiners Eye Europe

February 26, 2020

Asian refiners facing severe jet fuel demand destruction due to the Covid-19 coronavirus have turned to Europe to soak up surplus barrels but the virus is spreading quickly in the continent leading to more flight cuts as nations try to tame the outbreak.

In the latest round of flight bans, countries in the Middle East have severed air links to more places. In the extreme, the civil aviation authority in Kuwait has added Singapore and Japan to a list that already include Iraq, South Korea, Thailand and Italy.

The United Arab Emirates suspended all flights arriving to and departing from Iran, effective immediately for one week, which could be extended if necessary.

The emirate's airports are a major gateway for Iranians. Oman, Jordan, Kuwait, Iraq and Saudi Arabia have also suspended flights to Iran.

Many airlines have already stopped flights in and out of major Chinese cities for weeks following the epidemic since late January, triggering a massive drop in jet fuel consumption that now looks to grow again as the virus spreads to Europe and other Asian countries.

"The situation in China is beginning to stabilize, the market appears to have bottomed out but conditions in South Korea, Japan and elsewhere are getting worse. If countries want to control the virus one of the easiest way is to close flights," said Feng Xiaonan, IHS Markit downstream analyst in Beijing.

Feng said that there was a chance that domestic flights in China may resume as soon as April, which would be a much needed boost to the domestic jet fuel market.

An outbreak in northern Italy has spread to other neighboring countries and also brought the first case to Africa in Algeria, while the death toll in Iran rose to 16, the largest outside China, according to media reports.

The number of deaths in China increased to 2,715 on Wednesday while more than 78,000 people have been infected. The epidemic is spreading quickly in South Korea with cases rising to 1,146, the most outside China, with Italy registering 323 infections and Japan 171.

Passenger air travel in China fell by almost 60% from a year ago during the Lunar New Year period from Jan. 10 to Feb. 18, according to IHS Markit.

Domestic jet fuel demand will drop by 180,000 b/d in the first quarter, IHS Markit estimates show, with consumption shrinking by 30,000 b/d in the second quarter and rebounding in the third quarter with a 50,000 b/d growth.

As a consequence of the overall decline in East Asia jet fuel usage, refiners in the region are seeking out outlets in Europe as the fill in for absent Middle East producers that have taken down their facilities for maintenance.

Just as the outage to crude oil production in Libya due to a civil strife has aided the energy complex from bigger falls, the turnaround season in the Middle East, which has affected refineries in Saudi Arabia, the United Arab Emirates and Kuwait, is helping oil product sellers from East Asia.

But should the virus spread in Europe and in turn affect flights to and from that region then even this market may no longer be an option for East Asian refiners, one industry source said.

Shipping fixtures show a slew of tankers loading up from Singapore, the region's premier trading and storage hub, bound for Europe as traders gathered surplus barrels for export.

Three tankers were chartered to ship a total of 245,000 mt in February and early March from Singapore to Europe compared with none in January and 90,000 mt in December, according to shipping fixtures.

At the same time, four tankers were booked to load 320,000 mt in February from South Korea also bound for Europe, with option to discharge in Singapore, the lists show. This compares with none in January and 90,000 mt in December.

South Korean refiners typically ship arbitrage volumes to the U.S. west coast, including Hawaii, with seven medium-range tankers booked to load in February compared with nine in January, the fixtures showed.

Market sources said the surge in sales to Europe showed that refiners and traders are exploiting every arbitrage opportunity open to them in order to ease the supply overhang in the region that has also affected margins.

Jet fuel crack, or margin, tumbled to $7.91/bbl on Wednesday, according to OPIS IHS Markit data. The profit margin is the lowest in more than a decade.

Gain reliable jet fuel contract pricing with all-day trade visibility with OPIS450 Europe Jet Ticker. Begin a Free 14-Day Trial to the OPIS450 Europe Jet Ticker & Report

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

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Oil Price Needs To Rise To Make SAF Competitive - Neste CEO

January 21, 2020

Oil price would have to top $100/bbl for sustainable aviation fuel (SAF) to become competitive with traditional kerosene, Neste CEO Peter Vanacker told a conference in Berlin on Monday. 

Vanacker pointed out that the high cost of waste feedstock and the process of synthesizing biojet is hiking the cost of sustainable aviation fuel. He estimated that the cost of SAF is currently three times that of traditional kerosene. However, SAF could become competitive with kerosene without additional subsidies if oil price rise to $100/bbl, he said.

Neste the largest producer of SAF in the world. However, the industry is very nascent compared to tradition jet fuel production, accounting for less than 0.1% of all aviation fuels consumed in 2018, according the International Energy Association (IEA). 

Vanacker, speaking at the Fuels for the Future, also called for more biofuels to be used in road transport and urged for alternative fuels producers to work together. 

"There is not just one solution to tackle climate change and reduce the share of hydrocarbons. We need all the solutions not just biofuels," he said. "No one alternative for fossil would cover consumer demand. We need several solutions for decreasing emissions from land, air and every sector imaginable. Refiners should think of themselves as collaborators not competitors."

Vanacker conceded that the European Union's Renewable Energy Directive (REDII) was a good starting place for uniform promotion of biofuels, but countries need to do more to ensure a predictable operating environment and investment required for innovation.

The conference is organised by the German BioEnergy Association.

-- Selene Law, slaw@opisnet.com

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