With jet fuel supplies at risk after the closure of the Strait of Hormuz, a newcomer to the market has revealed how is helping to keep planes flying thanks to a Cold War relic.
Alkagesta, a commodity trader, joined a select group of companies granted access to the Nato Central European Pipeline System (Ceps) only days before the Iran war broke out.
The 5,000km pipeline system linking airfields, oil refineries, depots and ports was built in the 1950s during the Cold War to supply Nato forces but now supplies mostly jet fuel to both military and commercial transport hubs.
After the start of co-ordinated US-Israeli air strikes against Iran on February 28 and Tehran’s retaliatory attacks, shipping traffic through the Strait of Hormuz, which supplies a fifth of the world’s oil, came to a halt.
Jet fuel exports from the Gulf fell by around 80 per cent in March as part of wider disruption that wiped more than 10 million barrels per day from global oil supply.
Alkagesta’s Asad Huseynov told The National of the long process the company went through to gain access to the pipeline.
“In this crisis we have managed to turn the risk into opportunities,” he said, speaking on the sidelines of the S&P Global Energy Middle East Petroleum and Gas Conference in London.
“In one of the airports, one of the airlines have reached out to us and said 'my current supplier says he's short of jet fuel, he cannot supply to me, can you find me jet fuel?' We have managed to find him fuel at the volume that he needed.”
Mr Huseynov said Alkagesta “actually have a contract with two holiday airline companies”, though he would not reveal which ones.
The company was previously a cargo trader, shifting products around but never selling directly to market. After the Iran war began, it sensed an opportunity for profit supplying jet fuel directly to airlines in Europe.
Mr Huseynov said Alkagesta went through a “lengthy process” to be allowed access to pipeline during which it had to present a detailed business plan.
“Every year there are a limited number of new customers that they can get on on-board and give access to pipeline,” he said.
“It has many entry points into the system, starting from different parts of Europe and it has many exit points to different European airports.
“You have to explain why you want to do X tonnes from this entry but less on another entry, and why you want to take it to this airport.”
Mr Huseynov, Alkagesta’s managing director of investments and assets, said the company buys jet fuel from refinery suppliers in north-west Europe including Exxon, Vitol and Petroineos, with which it has had relationships “for many years”.
The fuel is then shipped via the pipeline to customers at airports in Brussels, Frankfurt and elsewhere in Germany.
The company has a service agreement with the airports, which store the fuel in tank farms, and companies who then pump the fuel into the planes.
This year, Alkagesta expects to trade 100,000 tonnes of jet fuel but believes the market will remain steady in Europe, even as the continent moves towards renewable energy.
“I can say in terms of the annual jet fuel sales, we're planning to increase it several times. So I think it was a really good decision for us to enter this market.”
Higher regional refinery output, and use of stocks and imports from the US and Nigeria have helped offset the loss of Middle Eastern supplies, easing earlier fears of jet fuel shortages in Europe.
Air France-KLM this week became the latest airline to announce its jet fuel supplies are secure for the summer. Last week, Germany's Lufthansa said there were “no signs” of supply risks at its six European hubs of Frankfurt, Munich, Zurich, Vienna, Brussels and Rome.
Ryanair chief executive Michael O'Leary has said supply appears secure until September, while Jet2 said it does not expect disruption to its summer schedule.
