Jet Fuel Storage Expiration Approaching... What About the Inventory?

[Asia Economy Reporter Hwang Yoon-joo] As the new coronavirus infection (COVID-19) crisis blocked air routes worldwide, domestic refineries supplying jet fuel are struggling to manage their inventory. Jet fuel changes its oil properties when stored for a long time, so it usually has to be disposed of at a low price after about two months.

According to the refining industry on the 13th, the sales decline rate of jet fuel by domestic refineries last month was found to be as high as 80-90%. A representative from Refinery A said, "Following January and February, jet fuel consumption sharply dropped in March, dealing a direct blow to jet fuel sales," adding, "It decreased by more than 80% compared to the same period last year."

Jet fuel consumption has been steadily decreasing this year. In January, jet fuel consumption was 3.14 million barrels, down 5.7% year-on-year, and in February, consumption was 2.78 million barrels, down 4.4%. It is estimated that the decline in jet fuel consumption accelerated in March, when the suspension of domestic airlines' operations due to COVID-19 became full-scale.

The sharp drop in jet fuel sales and consumption is because, as of the 10th, 88.8% of the 204 domestic airline routes have stopped operating due to the spread of COVID-19. A representative from Refinery B said, "You can say that jet fuel sales decreased as much as the suspension of domestic airline operations."

The proportion of jet fuel production by domestic refineries is even higher than that of gasoline. Last year, their jet fuel production ratio was 13.66%, surpassing gasoline (13.45%) and ranking second after diesel (29.33%). SK Innovation is known to produce about 50,000 to 55,000 barrels of jet fuel per day, which corresponds to about 5% of the average daily refining capacity. GS Caltex has not disclosed its production scale but is reported to supply 50% of the jet fuel delivered to Korean Air.

The problem is that jet fuel is difficult to store for a long time. An industry insider said, "The storage period for jet fuel is usually two months," adding, "The fuel type itself is sensitive, and if stored long-term, its specifications can change, so airlines do not accept old products." This is also why the government's stockpiling mainly targets crude oil, gasoline, and diesel.

The suspension of passenger flights due to the COVID-19 crisis began in earnest from the end of February. If jet fuel inventory is not processed by the end of this month, it must be sold at a low price, but the refining industry explains that this is difficult as the suspension of flights has peaked. As a desperate measure, some refineries are preparing alternatives such as mixing jet fuel with heavy oil, but this is insufficient to solve the inventory problem.

Exporting surplus jet fuel is also not easy. Jet fuel ranks second in exports (22%) among domestic petrochemical products, but global demand has sharply declined as countries have suspended air operations to prevent the spread of COVID-19. Although China is rapidly recovering economically, mainly in manufacturing, restrictions on air operations remain.

An industry insider said, "If the ban on foreign entry continues, there will be limits to processing jet fuel inventory," adding, "Due to the nature of the capital-intensive industry, refineries cannot significantly adjust their operating rates, so they have to bear losses for the time being."

This content was produced with the assistance of AI translation services.