Jet fuel surplus brings surrogate fuel boom

Russian producers are making cheaper jet fuel blends to substitute diesel

While low demand for distillates is pushing refiners to decrease the production of these types of fuel, in Russia, surrogate fuel producers are buying the unwanted jet fuel to mix it with other oil products and make cheaper blends.

Russians grant new lease of life for shunned jet fuel by blending it with diesel for cars, says Reuters. The tricky solution, which came when flights cancelled due to the coronavirus-related restrictions have brought down the jet fuel prices, may lead to shortages of the fuel for planes and lower tax income, warn industry sources.

In the first eight months of 2020, Russian air carriers decreased jet fuel consumption by 36%, or 1,9 million tonnes. However, jet fuel usage for other needs has jumped by 1,5 times, or 500,000 tonnes, read Reuters calculations based on the Refinitiv Eikon data. Russia produces around 12 million tonnes of jet fuel per year, of which 20% is destined for exports. Last year, 62% of the domestically-consumed fuel was used by civil aviation. Surrogate fuel producers have been the second-largest buyers of jet fuel, which is also used to produce paint and in the chemical industry. They consumed around 12-13% in 2018 and 2019, but in January — August 2020, the figure jumped to 22%. In May and June, supplies to air carriers and surrogate producers were in equal proportion.

“Everyone is making the fuel cheap by using the jet fuel,” said an anonymous seller. According to market sources, a blend of 60-70% of the summer-grade diesel and 30-40% of jet fuel is used for the production of the winter-grade, cold-resistant, diesel. Surrogate fuel is supplied not via retail networks of filling stations but by deliveries directly to consumers, for example, agricultural producers, builders, timber producers and others. “Rosstandart (Russia’s Federal Agency for Technical Regulation and Metrology) will not go to them to check the fuel quality, while they are OK with the quality of it. The main thing is the discount,” explained an unnamed trader.

The boom is concerning diesel producers, as they are facing the rivalry to their products from the cheaper blend. While the production of surrogate fuel is fully legal, it brings lower tax revenues in comparison to the sales of diesel. The Ministry of Energy is considering a possibility of capping sales of jet fuel for usage other than for the air carriers at the SPIMEX exchange, states Reuters.

By Anna Litvina