OPIS now publishes a jet benchmark for airlines who want to manage their fuel and carbon together.
‘Clean’ benchmarks originated in the power market and combine the price of energy and carbon compliance. Airlines that fly into or within Europe join Europe’s emissions market on January 1. So OPIS now publishes carbon and clean prices as well as one-stop carbon, jet and oil market analysis every trading day.
The latest volcanic eruption in Iceland has shone a bright light on jet fuel prices. Flight cancellations are expected to eat into European jet fuel demand and soften jet fuel cash spreads to the futures market. There was a slight downturn in barge jet fuel premiums today in Europe, but cargo premiums were flat. Experience from last year, however, shows that sustained cancellations will bring over-stocked aviation desks into the spot market, depressing prices as they do.
Around 500 flights were cancelled today in the far regions of north Europe such as Norway and Scotland, after an ash cloud spread from a volcano in Iceland, according to air traffic control body Eurocontrol. In the UK, airports affected include Londonderry, Glasgow, Edinburgh, Prestwick, Durham Tees Valley, Newcastle and Carlisle. But the ash cloud is expected to spread across much of the UK by the end of the day. Shifting wind patterns make the path of the cloud hard to predict.
According to the Volcanic Ash Advisory Centre in London, there is a strong possibility that the ash cloud may impact parts of Denmark, southern Norway and south-west Sweden by tomorrow, and there are reports that German authorities are closing airports in the north of the country.
The International Air Transport Association (IATA) issued a statement today reminding government officials in Europe that “states should not implement blanket closures of airspace” as in April 2010. “Regulators should accept the capability of airlines to conduct their own safety risk assessments prior to flight in any affected area,” IATA said.
IATA estimated that mismanagement of the 2010 volcanic ash crisis costs airlines $1.8 billion in lost revenues and cost the global economy as a whole $5 billion.
IATA says the process this time is working better “but there is still no formal obligation for a unified and coordinated response” to this kind of crisis.
A report issued by DnB NOR Markets from analyst Torbjorn Kjus said that the April 2010 volcanic eruption wiped out 104,000 flights over an eight day period.
At the peak on April 17th and 18th, air traffic was only at 17 percent of normal levels. For all of April 2010, DnB estimates air traffic was down 12 percent versus normal.
Jet fuel consumption in April 2010 declined about 110,000 b/d from its typical levels, to 720,000 b/d from 830,000 b/d. DnB estimates that jet demand fell about 13 percent during the period of the April 2010 crisis.
The impact on jet prices in April 2010 was mostly a decline in the jet fuel crack spread. It fell about 19 percent from April 7 to April 19, 2010, DnB reports.
OPIS Europe Jet & Gasoil historical data indicates that jet cash premiums to the ICE futures market slipped 25 percent from April 14 to April 19th. Flat prices fell by less than 10 percent. They bottomed out on April 19th before rising again.
OECD jet fuel demand has been running about 3 million b/d and is on the bottom end of a ten-year chart. Europe jet demand accounts for just over one- third of this total.
Standard Bank says the current volcanic activity “could see an increasing risk of a decline in the jet differential.”
Standard Bank proceeds to say “there will also be an impact on other parts of the oil barrel, besides jet, as some of the lost air travel would be made up by car and train journeys.” This could be supportive of gasoline and diesel to some extent.
China’s Civil Aviation Authority has issued guidelines to Chinese airlines, urging them to cut carbon intensity by 22% by the end of 2020 from 2005 levels.
Although the targets are not linked to EU’s cap-and-trade market, Chinese airlines have protested at their inclusion in the scheme which will apply to all airlines that fly in and out of the region from next year.
Chinese officials are due in Brussels shortly for talks with the EU Commission on the inclusion of Chinese airlines in the EU’s emission trading scheme.
As the regulation stands, on a flight from Shanghai to Paris or from New York City to Paris, airlines would have to offset the emissions from the entire trip because it lands in Europe. The return trip would be subject to the same penalty because it takes off in Europe.
At the High Court in London in late 2009, The Air Transport Association of America and United, Continental and American airlines brought a suit against the extension of the ETS to all flights taking off from or landing in Europe. The parties are still waiting for a hearing date.
The EU may exempt from the ETS airlines from developing countries that demonstrate they are acting to curb emissions equivalently on their own. But a Chinese source denied that the timing of the guidance issued to airlines was intentional, saying it was a coincidence that the guidance was issued just before the Brussels meeting, enviro-aviation publication GreenAir Online reported.
If the exemption strategy does not work, however, China could retaliate. The Chinese government may place emissions limits of their own on European carriers, Shanghai Daily reported, potentially double-charging those airlines.
The EU will create 212.9 million carbon allowances in 2012 for the airline industry. Each allowance is worth a tonne of carbon.
Airlines will receive around 175 million EU allowances for free, but will have to buy EU allowances or other types of carbon credits for every extra tonne of the greenhouse gas they emit.
In 2013, the number of EU aviation allowances created will drop to 208 million, and airlines will receive only 170 million for free.
Between 2004 and 2006, airlines flying within and into EU airspace emitted around 219 million tonnes of carbon, but the industry has grown sharply since then.
Analysts expect aviation emissions will top 260 million tonnes of carbon in 2012.
Companies such as Vitol will help airlines meet their ETS allowance submission by promoting clean development
Companies and factories regulated by the EU’s emissions trading system (ETS) used a record amount of UN credits (Certified Emissions Reductions and Emissions Reductions Units) to meet their emissions reductions targets last year.
Some 137 million CERs and ERUs were used for compliance last year, an increase of 68% compared to 2009.
“The main reason for the higher usage of UN credits in 201o is probably the EU ban on using credits derived from destroying the industrial by-product gases HFC 23 and N2o from adipic acid projects that will apply from 2013,” said Stig Schjolset, a senior analyst at Thomson Reuters Point Carbon.
“As these credits will hold zero value as compliance instruments during phase 3 of the EU ETS, many operators have probably already opted to surrender a higher amount of such credits in 2010 than would otherwise have been the case,” he added.
The airline sector will be allowed to use 32 million CERs to meet its carbon exposure when it joins the Emissions Trading Sytem next year, according to Deutsche Bank.
Of the 137 million credits used, 117 million were CERs, generated by the clean development mechanism (CDM), up 50% on the 78.5 million CERs used in 2009, and 20 million were ERUs, generated by Joint Implementation Projects, up 600% on the 3.2 million ERUs used in 2009.
On 16 May the European Commission will publish data on which credits have been used for compliance in 2010.
Officially set for a major launch later this month, OPIS is pre-releasing this 17-page guide to managing jet fuel under the carbon ETS for visitors to its campaign website. OPIS launches this week its Clean Jet Assessment at an airline gathering in Singapore.
With the new Aviation Emissions Trading System on delegates’ minds at the Singapore IATA Fuel Forum, OPIS is launching its assessment with a variety of guides and information resources in print, online and on film.
OPIS editors interviewed airline environment managers who have been involved in the trading system since it was conceived, but also fuel departments who have yet to decide how they will respond.
The variety of strategies for coping with carbon purchasing under the scheme included…
• aiming to buy carbon allowances at auction only
• a 24-month active trading and layered hedging programme, including carbon exchange membership
• the new consolidated offering from a supplier which credits carbon allowances directly to the airline’s registry they buy jet fuel
OPIS Clean Jet – jet fuel and carbon pricing joined up is the title of a new film launched this week by Oil Price Information Service (OPIS) aimed at airlines and fuel suppliers involved in Europe’s new Emissions Trading System (ETS).
The launch marks the start of new pricing services for OPIS customers designed to make complying with Europe’s carbon cap and trade system simpler.
OPIS hired a reporter with carbon market experience and then got its expanded team to track down aviation fuel managers, treasury executives and suppliers across the world as it researched the film.
The seven-minute production highlights OPIS’s new ‘clean’ fuel pricing, a concept which comes from contracts pioneered in the electricity market which had carbon permit costs included.
The new contracts are emerging in the aviation market as suppliers look for ways to make complying with the new emissions system an easier reach for EU airlines, and operators that fly into the European Union.
Peter Hind, Managing Director of RDC Aviation, a leading consulting group was interviewed at the company’s Nottingham base, and Jonathan Leak of World Fuels Services met the crew in Atlanta, Georgia.
“Consolidated jet fuel and carbon contracts won’t suit everyone,” Leak says in the interview, “but for companies who are short of carbon allowances and who don’t want to actively trade carbon themselves, they provide a good option.”
“We’ve already had aviation managers calling up to say how much they appreciate being able to access the ‘clean’ prices,” said Tim Wright, who runs OPIS’s team in Europe, “and our forward clean assessments, which for the first time give them visibility on their costs in 2012.”
The film, along with a series of longer interviews, can be viewed online, where the team is also tweeting from the launch of the new pricing service at the IATA Fuel Forum in Singapore.
