A sea change for US jet fuel: record net exports for 2012

Think the jets to Europe and Latin America are packed? Try the ships carrying jet fuel.

 The idling of a major Caribbean refinery last year helped speed along a net export trend for US jet fuel, with a record amount shipped out of the US in 2012. The reversal of historic net imports happened despite events that would normally make one think the US would be a heavy importer: major refinery issues on the West Coast and Hurricane Sandy on the East Coast.

Energy Information Administration data released last week showed US net exports in December at a record 131,000 b/d, equal to nearly half a cargo a day. (December is the month with the most recent available data.) For all of 2012, the US exported 77,000 b/d more than it imported, besting the only other net export year of 2011, when it was 28,000 b/d, EIA data showed.

“You had a couple of refineries shut down–Hovensa, Aruba,” a US jet fuel trader said. “It could have been a case of good margins that resulted in higher runs and a need to export more volume to cover volume not supplied by refineries that had closed down.”

Hess and PDVSA in early 2012 idled the 350,000 b/d Hovensa refinery in the US Virgin Islands to operate as an oil storage terminal. The US’ Valero Energy also decided to convert its refinery on Aruba into a storage terminal after shutting it in March 2012 for economic reasons. Both refineries supplied jet fuel and other petroleum products to the US Atlantic Coast, Latin America and Europe.

Caribbean refinery closures are among many factors that have caused more reliance on US jet fuel. Airlines are coping with higher fuel prices by cutting capacity, while US refiners are retooling toward high-margin middle distillates. 

“We import jet fuel into Alaska and Hawaii and the rest of the country is sort of balanced or long,” consultant Andy Lipow of Lipow Oil Associates told Platts earlier this year. “We have more efficient planes, less capacity and higher utilization, so you see jet fuel just move around, in and out of the US.”

More and more of those barrels have been moving out. The US still imports far more gasoline than it exports, but diesel hit record net export levels several years ago and remains high. Jet fuel exports are positioned to follow suit, especially with specifications relatively the same worldwide.

“Jet has always been a global commodity,” Lipow said. “What you’re seeing right now is the US has become a low-cost refining center.”

Jet fuel traders agreed, saying many players in the market have just started realizing that the growth in jet fuel is in other parts of the world. Latin American demand has been booming, evident by such quick growth at Miami–the US gateway city to South America– that its airport can’t get enough cargoes or barges of jet fuel into a nearby port and then can’t ship enough to the Miami and Fort Lauderdale airports because of pipeline size, sources said. 

As for Europe, traders said tax and specification issues are big deterrents that may have eased. In fact, one source said traders increasingly ignore the headaches caused by the need to blend to specs like Europe’s higher freezing point and want to take in more US jet fuel because of its superior density.

Sources said they have heard at least one major Gulf Coast refiner has started to export jet fuel for the first time, while usually self-sufficient Mexico cannot meet its own growing jet fuel needs.

For all of 2012, the US exported 48.45 million barrels of jet compared with the previous record in 2011 of 35.3 million. Just 10 years earlier, US jet fuel exports totaled only 3 million barrels for the entire year.

Imports fell to 20.31 million barrels for 2012, the lowest yearly total since 20.17 million in 1991. The US imported 39 million barrels 10 years ago, peaked at 79 million barrels in 2007 and dropped to 25 million in 2011.

The net export story also happened despite fires that shut or reduced two large jet-centric refineries on the West Coast for chunks of 2012, which attracted Asian imports. On the East Coast, when Hurricane Sandy hit in early November, airline fuel buyers said the bigger worry was finding gasoline for employee cars than finding jet fuel for the airplanes. Other US refineries were able to pull in their exports and pick up the domestic slack.

The net trend started shifting after the 2007 peak as flying declined in the recession while sharply higher prices also curbed jet fuel demand. But even with a recent economic recovery, jet fuel traders do not see the trend changing back. They note US refiners are expanding product export capabilities for all distillates, including jet fuel.

Canada is the main export destination for jet fuel, taking in 1.77 million barrels in December, the high end of the four to six US cargoes it typically receives each month. The US, however, shipped to a wide array of countries, including 1.2 million barrels to the UK, 920,000 to the Netherlands, 369,000 to Panama, 320,000 each to Chile and France, 260,000 to Nigeria, 150,000 to Peru, 132,000 to Guatemala, and 107,000 to the Dominican Republic.

“That kind of tells the story, doesn’t it?” a fuel buyer for a major airline said of the variety of buyers. “It’s a different dynamic going on for jet fuel now. It’s a sea change.”