How much longer can Australia go before planes run out of fuel?
China’s response to the Iran war has put a question mark over future supplies for the domestic aviation industry as rising prices disrupted spot markets and cloud planning for airlines.
“Everyone is worried about access to fuel… everyone who has it is buying it and trying to get it,” Australian Institute of Petroleum (AIP) president Malcolm Roberts said. “We are monitoring material sources throughout the region.”
“We are also watching China because they are the main supplier of jet fuel.”
China, Australia’s biggest supplier of jet fuel, began restricting fuel exports last week, partly due to supply disruptions from the Middle East due to the US and Israel’s war against Iran.
The move means countries dependent on Chinese jet fuel, such as Australia, “must scramble to get new cargoes from South Korea, Singapore, Malaysia and India, which are chasing supply in the same shrinking pool,” according to Dan Wang, director of Eurasia Group’s China team.
“Inflation pressure is high, which may cause flight frequency to decrease and cross-border tourism to be hit,” Wang said.
According to AIP, Australia uses around 10 billion liters of jet fuel a year, with more than 80 per cent of this imported. The country imports about 2.6 billion liters, or 32 percent, from China annually, while another 1.8 billion liters, or 23 percent, comes from Singapore. South Korea supplies 1.4 billion liters a year, or 18 percent. Other sources include Malaysia, Taiwan and India.
Domestically, refineries in Queensland and Geelong produce about 20 per cent of the country’s jet fuel.
“We are still able to secure contract supply,” AIP’s Roberts said. 18 tankers have arrived this month, 33 more will arrive, and so far no member of his organization has reported non-fulfillment of contracts.
The question is what happens next. “We are exposed to those prices in the global market,” he said.
The past two weeks have been a stark reminder of “how fragile our global systems are and what an interconnected world we live in,” Infrastructure Minister Catherine King told an audience in Melbourne on Wednesday. “We are seeing the hourly impact on the Gulf states and the impact being felt around the world.”
Last week, Scandinavian airlines including SAS and Air New Zealand announced the cancellation of thousands of flights, citing tight fuel prices. The aviation industry remains under pressure to supply jet fuel in the coming months as the Australian government moves to ease concerns for drivers and truckers.
Airlines typically purchase jet fuel through forward contracts, fixing prices, or on the spot market to purchase more fuel as needed. China’s restrictions aimed at securing its own domestic supply are effectively drying up the spot market, further introducing cost uncertainty.
Australia is not directly dependent on Middle Eastern oil, but is indirectly exposed to it through the refining of Saudi Arabian oil in China and Singapore.
For now, the country is 21 percent ahead of its government-mandated minimum stockpile obligation for jet fuel of more than 800 million liters, or the equivalent of 29 days’ worth of jet fuel.
Fuel supply routes between Sydney Airport and Singapore, which accounts for 40 per cent of the country’s jet fuel consumption, will remain open and no disruption to the supply chain is expected for at least the next six weeks.
But price shock is coming.
Singapore jet fuel rose from around US$92 per barrel in late February to as high as US$220 when the conflict began in early March. It has since returned to around $197 and is still twice its February price.
Announcing half-year results last month, Qantas and Virgin Australia said they had hedged most of their fuel contracts for the remainder of the financial year until the end of June.
Qantas said it had 81 per cent of its fuel protected for June, but that figure did not include more volatile refinery margins.
A spokesperson for Qantas said Qantas was in contact with the government and major fuel suppliers “who provide us with a level of confidence in the current supply of jet fuel in Australia”.
“However, given the uncertainty of the conflict in the Middle East and the potential impact on the jet fuel supply chain, we continue to monitor the situation closely.”
Virgin, a predominantly domestic carrier, has hedged 85 percent of its fuel. Its schedule currently remains unchanged, with no decisions being made regarding capacity changes in response to increases in fuel prices.
“We have received assurances from our fuel suppliers regarding our near-term fuel needs,” a spokesman for the airline said.
Sydney Airport has stressed it is not dependent on fuel supplies from China, but chief executive Scott Charlton said discussions about Australia’s fuel security highlighted the importance of building greater resilience in the country’s fuel supply, including aviation.
He said a long-term move to reduce airlines’ dependence on fuel imports could be a switch to low-emission sustainable aviation fuel (SAF) made from biomass.
Little progress has been made to date on switching to the new fuel aimed at reducing the environmental impact of flying, even though government guidelines in Europe require airlines to adopt it.
“Australia already produces most of the raw materials needed to make SAF, but much of this material is exported overseas and processed into fuel, which we then buy back,” Charlton said.
“Developing a domestic SAF industry will allow us to capture more of that value here at home, while strengthening our energy security.”
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Chris Zappone is a senior reporter covering aviation and business. He is the former digital foreign editor.Connect with: X, Facebook or email.
Lisa Visentin is the North Asia correspondent for The Sydney Morning Herald and The Age, based in Beijing. He was previously a federal political correspondent in Canberra.Connect with: X or email.
