While some airlines have only recently discovered the International Maritime Organization, many had already experienced the most acute supply shortage of jet fuel in recent memory last winter when they flew to Japan.
But before airlines even start to feel the potentially game-changing impact of IMO 2020 on the aviation industry, they may have to grapple with a more immediate challenge -- jet fuel tightness in Japan -- this coming winter, again.
One airline from the greater China region had to lower its load factor when flying to Japan last winter so it could take more fuel for the return flight because it was not able to adequately refuel at Japanese airports.
The aviation industry competes with Japan's residential and commercial heating demand for kerosene, which typically shoots up in winter to 2.2 million-2.3 million mt/month over December-January and then declines to 350,000-400,000 mt/month over July-August, the hottest months of the year.
Such drastic swings in heating kerosene demand typically give refiners a run for their money. They respond by building heating kerosene stocks long before winter in storage facilities in Japan and nearby South Korea. In the process, they maximize production of heating kerosene at the expense of jet fuel.
The production volumes of heating kerosene and jet fuel are in inverse proportion to each other, with jet fuel output from Japanese refineries typically at its lowest for the year in January-February, according to data submitted to the Joint Organizations Data Initiative. Japan's jet fuel production has also been dropping over the years, hitting a multi-year low of 663,000 mt in January, down 15.5% from a year earlier, which itself was a 7.4% drop from January 2016.
In contrast, the country's jet fuel consumption has been much more stable, at around 800,000-1 million mt/month throughout the year.
The economic incentive to focus on the heating kerosene market is obvious. The spread between the Kanagawa kerosene rack price, a key indicator for non-jet grade kerosene in the domestic market, and FOB Singapore kerosene, the Asian benchmark for jet fuel, averaged $4.32/b in 2017 and $5.01/b for the first eight months of 2018, according to S&P Global Platts data.
The two grades are generally not interchangeable, as heating kerosene lacks the additives required to power a plane, while jet fuel's sulfur limit is 3,000 ppm, way beyond the 80 ppm limit set for Japan's heating kerosene.
Imports make up a significant portion of the jet fuel available in Japan during winter, which has been growing for several years, reaching 314,000 mt in February, more than double the imports of a year earlier.
The number of fuel suppliers to major airports in Japan is limited, and many lack the flexibility to source both domestically and from international markets when supply is tight.
San-Ai Oil, the sole fuel facility provider at Haneda airport, the country's busiest, receives jet fuel from JXTG, Cosmo Oil, Idemitsu Kosan and Showa Shell.
The same group of companies supply jet fuel to Narita, according to the airport's website. Connected by a 47 km pipeline to Chiba Port Aviation Fuel Terminal owned by Narita operator NAA, Narita refueled 77,029 b/d of jet fuel during the 2017-18 financial year.
The situation will not improve this coming winter, according to a fuel procurement manager at a Japanese airline. "Tight supply is not limited to Haneda; [it happens at] some regional airports too," the source said.
The fuel procurement manager acknowledged that Japanese airlines typically have priority over international airlines in securing fuel when supply is tight.
Another Japanese airline has been in discussions with a Japanese trading house to import jet fuel to Narita airport, according to trade sources. Berth No. 1 at Marubeni Ennex's Chiba terminal can accommodate tankers of up to 85,000 dwt, according to its website, and the terminal has a direct pipeline connection to the Chiba Port Aviation Fuel Terminal, making it a feasible reception point for fuel supplies to Narita.
Japan is a net jet fuel exporter despite its domestic imbalance, counting the US as its biggest customer, although tight domestic supply in recent years has sent total exports falling. The country's jet exports averaged 143,000 mt/month in the first half of 2018, down from 177,000 mt/month throughout 2017. It shipped 221,000 mt/month in 2016.
Already, at least one major Japanese refinery has decided not to export jet fuel this coming winter.
"The domestic market is too good," a refinery source said.