global bioenergy supply chain intelligence

Aviation Caught Between a Rock and a Hard Place

With the price of oil rising and price volatility increasing, the aviation industry is scrambling to develop biofuel alternatives.  Meanwhile, demand from the ground transportation market puts aviation out on a limb.


With so much volatility in the price of oil over the last decade, who can blame the airline industry for placing big bets on aviation biofuels over the last few years?

With oil above $100 for the second time in the last four years and Obama announcing renewed emphasis on the development of domestic biofuels resources, it seems as though the economic and policy momentum may finally be behind the backs of the aviation industry.  With so much at stake, airlines, manufacturers, and the military are staying busy.

The list of recent supply deals is long: AltAir signing an MOU with 14 airlines to supply camelina-based fuel, BioJet and Great Plains working together to develop their own green fuel derived from camelina, Kingfisher Airlines working with three companies on R&D for aviation biofuels, and Qater Airways leading a consortium to investigate potential biofuels, just to name a few.

Despite what the rhetoric may indicate, renewable jet fuel is not so much about reducing emissions — the carbon regime is not sufficiently developed or binding at this point to drive investment — but about the emerging inevitability of higher fuel costs.

According to the Air Transport Authority (ATA), the industry trade organization for the leading US airlines, fuel expenses have historically ranged from 10 to 15 percent of US passenger airline operating costs, but averaged more than 35 percent in the third quarter of 2008.  After a brief reprieve from high fueling costs, $100 oil is back and likely to stick around so long as geopolitical uncertainty in the Middle East persists.

Projections from the IEA suggest that oil prices will remain high in the near term.  According to the Agency, $40 oil is still high and capacity constraints, geopolitical uncertainty, and demand growth will not disappear overnight, continuing to provide price support for the foreseeable future.  Long term is anyone’s guess, but the oil market’s growing volatility is driving demand for alternative sources of fuel.

The graph below, taken from this article from, shows a dramatic increase in oil price volatility:


Within this context, the International Air Transport Association (IATA) has been deriding governments and oil companies for failing to invest in the development of aviation biofuels.  This article from Flight International notes:

Both IATA and Airbus are calling for government authorities to support the aviation industry’s efforts to gain priority access to biofuel, arguing that the industry does not have other energy options because, unlike the automotive industry, it cannot use electricity, while hydrogen would not be economically viable even if it were technically achievable.

IATA’s criticism touches on a difficult question: in the face of rising oil prices and volatility, are scarce biofuel products best invested in auto transport or aviation?

As demonstrated by movements in the “crack spread” of jet fuel, which is the difference between crude oil and jet fuel prices, acute supply shortages tip the balance in favor of auto transport.  This was demonstrated in the weeks following hurricanes Katrina and Rita in 2005, when major oil supply disruptions prompted refiners to focus their operations on producing gasoline, and away from speciality fuels like kerosene.

With aviation accounting for only 12 percent of transportation fuel demand, the auto transportation sector will maintain a distinct market advantage over aviation.  But with efforts to meet Renewable Fuel Standard (RFS2) mandates already falling short, it is unlikely that the aviation industry will receive much federal support so long as gasoline prices remain high for the general public.  As such, the aviation industry may be fighting this battle on their own.  The hope, of course, is that breakthroughs in biofuel technologies that convert dedicated energy feedstocks, including algae, camelina, or jatropha, will make this decision moot.

Image: Flickr/wvs

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