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While oil supply shocks caused by the war in Iran have played havoc with gasoline and diesel prices, the cost of jet fuel has soared even higher. And as if Canadians’ budgets weren’t already strained enough from paying more at the pumps and store checkouts, for many, travel is about to become prohibitively expensive. Here, the Financial Post looks at what makes aviation fuel pricier to produce, why Canada is somewhat insulated from the supply shortage and how airlines are responding.
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Why is jet fuel more expensive?
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Limited refining capacity, strict quality control standards and specialized storage, transportation and distribution logistics all factor into the price of jet fuel.
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Crude oil is refined into jet fuel using distillation, a process whereby it is heated and the liquids and vapours are separated in a tower based on boiling points.
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Overall, jet fuel and gasoline have different compositions, volatility and flashpoints. Jet fuel is denser and less flammable than gasoline and has a lower freezing point so that it can withstand cold temperatures at high altitudes.
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It is a “high cost, high value product” that only about 10 per cent of the world’s refineries produce, said John Gradek, a faculty lecturer on supply networks and aviation management at McGill University in Montreal.
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Compared to gasoline or diesel, you need a lot more crude oil to make jet fuel. Gradek said a typical barrel of oil can produce 44 barrels of gasoline, 17 barrels of diesel and 11 barrels of jet fuel.
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“The price of that aviation fuel coming out of the refinery is a reflection of the amount of crude oil that you consume in order to get that barrel of jet fuel,” he said. “And you’re consuming a lot more crude oil to get that one barrel.”
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Where is jet fuel refined?
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There are a limited number of jet fuel refineries scattered around the world but Canada has “lucked out” in that area, Gradek said.
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There are seven refineries located between Quebec and British Columbia that can supply 85 per cent of aviation fuel needs for departing aircraft. The other 15 per cent of Canada’s jet fuel is imported from the United States, Rotterdam or Trinidad and Tobago.
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While Canada is relatively “self-sufficient” and shouldn’t have problems servicing domestic flights, Gradek said airlines face issues when they fly internationally and need to refuel.
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“If you’re flying from Toronto to São Paulo, or Calgary to Amsterdam, or Calgary to Tokyo, you haven’t got enough gas to come back on that plane, so you have to buy gas locally,” Gradek said. “And that’s where aviation fuel is short, and prices are high.”
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How is the Iran war affecting jet fuel?
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The conflict has severely disrupted — if not completely halted — the flow of tanker traffic through the Strait of Hormuz, a key shipping route for crude and other oil and gas supplies, including jet fuel, from Persian Gulf countries.
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