Driven primarily by the expansion of the middle class in emerging markets, IHS Markit said in an analysis released Oct. 9 that it expects the global market for jet fuel will reach more than 9.5 million barrels per day by 2040 to comprise more than 10% of refined product demand, but airline fleet efficiency and a potential shift toward biofuels pose a risk to that outlook.
According to the consulting firm, global jet fuel demand was 7.45 MMbbl/d, or approximately 8% of total refined product demand, in 2018, and in the last two years, annual refined product demand growth has "comfortably exceeded" 4%.
"In a refined-fuel market that has had sluggish annual growth of just shy of 1.5 percent overall, that is a bright spot for refiners, and [jet fuel] is one of the few refined products we expect to see gain consistent demand growth through 2040," IHS Markit Director of Refining and Marketing Research Louise Vertz said.
"One of the biggest factors in jet-fuel demand, on a global level, has to do with increased wealth in the form of rapid expansion of the middle class, particularly in Asia," IHS Markit Vice President of Refining and Marketing Research Sandeep Sayal said. "We expect this trend to continue, particularly in emerging markets, as about 160 million people are expected to join the middle class each year to 2025."
The consulting firm noted Organization for Economic Cooperation and Development markets currently hold 58% of the jet-fuel market, and it expects that share to decline to 48% of the market by 2040.
IHS Markit noted the International Civil Aviation Organisation's Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, could drive investments in fleet efficiency.
Under CORSIA, international flight operators seek to offset the sector's growth in carbon emissions through a market-based mechanism beginning in 2021, with the average of 2019 and 2020 acting as the baseline for sector emissions.
Airlines can choose to purchase credits to offset their emissions, but participation through 2026 is voluntary.
"While efficiency gains have averaged slightly more than 1% per year on a fuel per passenger-km basis, the advent of newer, fuel efficient aircraft could hasten efficiency gains, and take-up of these more efficient models is likely to accelerate in a higher oil price environment," IHS Markit said, with Vertz noting she expects gains in fleet efficiency to accelerate beginning in the mid-2020s because of CORSIA.
IHS Markit also said an increase in demand for sustainable aviation fuels, or SAFs, which are produced from sustainable crops, poses a risk to jet-fuel demand growth.
"Biojet can be blended with conventional jet fuel to reduce the carbon footprint of air travel by as much as 80 percent," IHS Markit said. "However, adoption of these fuels remains limited, in part by the prohibitive production costs, which is nearly that of conventional jet fuel."
IHS Markit noted current policy and market incentives are not driving investment in SAF production.
"This may change, however, as worldwide efforts to reduce carbon dioxide emissions gather pace and CORSIA goes into effect," IHS Markit said. "With this in mind, SAFs are expected to play a greater role in the fuel mix toward the end of the forecast period."