Global jet demand set to soar past pre-pandemic heights while SAF takes off

Global jet demand is soaring as more passengers return to the skies and summer air travel pushes aviation fuel ever closer to pre-pandemic levels.

Although global air travel measured by flights returned to pre-pandemic levels for the first time in mid-2023, jet fuel demand has not kept pace. So far, global jet demand in 2024 remains around 95% of 2019 due to efficiency gains, larger planes and a slower rebound in more fuel-intensive long-haul travel.

Global air passenger demand, measured in revenue passenger kilometers (RPK), rose 9.1% year on year in June, driven by the summer holiday season, data from the International Air Transport Association showed July 31, boosting jet fuel prices. International demand rose 12.3% on the year over the same period, with Asia-Pacific leading the growth at 22.6%, followed by Africa and Latin America at 16.9% and 15.3%, respectively.

Platts, part of S&P Global Commodity Insights, assessed the CIF NWE jet cargo differential on Aug. 6 at a $48.75/mt premium to the front-month ICE LSGO futures contract, up significantly from the one-year low of $9.75/mt seen on March 3.

Global jet fuel and kerosene demand is forecast to hit 8 million b/d this summer for the first time since late 2019, with the annual average returning to pre-pandemic levels for the first time in 2025, according to Commodity Insights. The main driver of oil demand growth since 2021, average global annual jet/kerosene demand growth is forecast at around 550,000 b/d in 2024, slowing to a 300,000 b/d rise in 2025 driven primarily by Western Europe and China.

Jet crack spreads in Europe and the US Gulf Coast have retreated from a spike in the wake of Russia's invasion of Ukraine but remain robust above the historical average of around $16/b. Jet fuel cracks are expected to broadly move in line with diesel through the remainder of the year; therefore, jet fuel is expected to be at a premium to diesel beginning this winter and lasting through next year.

Further out, Commodity Insights expects jet fuel crack spreads to narrow on average but could exceed the long-term historical range of up to $20/b.

Efficiency gains

In Asia, the world's top demand growth center for fossil fuels, domestic aviation has normalized, but international travel, especially in China, is still lagging.

China continues to face challenges to restart direct flights with India and to increase direct flights with the US, with the latter being less than 20% of pre-pandemic levels. The Chinese government has recently expanded its visa-waiver program, aiming to rejuvenate its international tourism sector. In India and Japan, year-to-date data indicates that international flights are near or above pre-pandemic levels in 2024.

"Domestic travel rebounded quickly in 2021-22 but has since stagnated. In the near term, demand growth will primarily be driven by international travel, which has been slower to recover but continues to grow," Commodity Insights said in a recent note.

While the demand for air travel is set to grow significantly in the coming decades, the adoption of more fuel-efficient technologies and operational improvements will help mitigate the impact on jet fuel consumption.

Since 2020, the average aircraft has already also become more fuel-efficient as newer planes enter the global fleet, with new-generation models like the Airbus A320neo and Boeing 737 MAX burning up to 30% less fuel compared to older models.

The efficiency gains are still coming. Airbus is already looking to upgrade the A320neo which would boost fuel efficiency by a further 20% to 25%.

Regulatory measures aimed at reducing carbon emissions, such as the International Civil Aviation Organization's (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), will also encourage airlines to adopt more fuel-efficient technologies and alternative fuels.

SAF impact

Looking ahead, the International Air Transport Association forecasts that air travel demand will continue to grow, doubling by 2040 from 2019 levels at an annual rate of 3.4%. Asia Pacific will lead the growth among the regions, contributing to more than half of the global net gain in passenger numbers, according to IATA. European and North American markets will see a slower rise in demand of 2.3% and 2.7% per year, respectively.

But the disconnect between passenger numbers and jet fuel demand will only widen as sustainable aviation fuels ramp up from a low base. Although jet fuel is set to remain the most resilient part of the refined oil barrel in coming years, SAF will play a crucial role in the decarbonization of the aviation sector and the displacement of conventional jet fuel.

Despite uncertainties over the pace of SAF impact due to uneven technological advancements, policy support, and market dynamics, Commodity Insights estimates that jet fuel production will likely peak around 2035 at 7.8 million b/d when SAF will make up some 11% of the global aviation fuel mix. The contribution of SAF could then soar to 36% of global aviation fuels by 2050, according to Commodity Insights.

The recovery in jet fuel demand since the pandemic has been significant, but the outlook hinges as much on the pace of the decarbonization drive as demand for air travel. While near-term demand is stabilizing, the long-term successful adoption of policy-driven alternative fuels and other sustainable technologies are more key than ever in framing the demand journey.