Asian refiners buoyed by rising jet fuel demand

By Seng Li Peng and Siva Govindasamy

SINGAPORE, April 20 (Reuters) -- Asian skies are getting busier and the impact is set to be felt in the jet fuel market, as brisk demand for air travel, due to rising incomes and more flights, cuts the region's aviation fuel surplus in 2017 by the most in at least five years.

About 100 million new passengers take to the Asian skies every year, adding to the billion that currently travel to, from or within the region, plane maker Boeing estimates. Airlines are already rushing to cash in on this and the travel boom is eroding Asia's structural surplus of jet fuel.

A draw down in excess jet fuel stocks will provide a rare pillar of support for Asia's massive refining sector that has been hit by poor profits, given weak demand for its main product -- diesel -- amid an economic slowdown in top consumer China.

Asia's jet fuel surplus is expected to tighten by at least 38,000 bpd in 2017, analysts' estimates show.

"Jet fuel demand will be strong in the coming years and Asia will be a main market, with resilient growth in passenger air traffic and cargo needs," said Sri Paravaikkarasu, a senior consultant at energy consultancy FGE.

"The pickup in aviation activities and relatively lower fuel costs will underpin demand expansion."

With prices of feedstock crude down over 60% from 2015 highs, jet fuel has also slid, averaging $43/bbl year to date, the lowest for the period since 2004.

This has cut costs for airlines, allowing them to pass on the benefits to passengers.

"There are more aircraft and more flight frequencies. That means there is a lot more traffic in the region. This is mainly leisure traffic, which continues to grow strongly in line with higher purchasing power," said Shukor Yusof, head of Singapore-based consultancy Endau Analytics.

"Looking at the forward bookings for summer, there is a lot of aggressive pricing by airlines," he added, which is set to buoy jet fuel uptake.

Asia's jet fuel demand will grow 128,000 bpd this year to 2.175 MMbpd and hit 2.282 MMbpd next year, FGE said. That will cut its surplus by 44,000 bpd to 222,000 bpd in 2017, the sharpest annual drop in over 15 years, Paravaikkarasu said.

JBC Energy analysts see the surplus tightening by 38,000 bpd next year to 338,000 bpd, the most since 2010 based on their supply-demand models, while Energy Aspects expects the decline to be the biggest in about five years.

Asia has a surplus, as most of its 30 to 35 MMbpd of refining capacity is geared towards making diesel, the process for which also yields jet. While the Asia-Pacific region soaks up almost a third of global diesel, demand for jet fuel has lagged.

But that is changing now.

Reflecting rising jet fuel demand, cash differentials -- which indicate if buyers are willing to pay above or below outright prices -- flipped into a small premium last month from a year ago. While differentials have weakened in April, the outlook remains robust as Asians travel more.

According to the International Air Transport Association (IATA), China is set to overtake the US as the single biggest air traffic market by 2020.

It is already the top jet fuel consumer, accounting for 34% of the region's growth this year, FGE estimates.

In Thailand, jet fuel demand hit a decade high of 5.94 million liters in 2015 as flights to Bangkok's main airports, Suvarnabhumi and Don Muang, rose to a record 271,483.

"The passenger market is proving resilient, and the planned rebalancing in the economy (of China) from investment-led to consumer-led growth will support further development in the long run," said Albert Tjoeng, assistant director, corporate communications, Asia Pacific for IATA.