With jet fuel supplies at risk following the closure of the Strait of Hormuz, a new comer to the market has revealed how it’s been able help to keep planes flying, with the help of a Cold War relic.
Alkagesta, a commodity trader, joined a select group of companies granted access to the NATO Central European Pipeline System (CEPS), just a few days before the Iran war.
The 5,000km pipeline system linking airfields, refineries, depots and ports was created in the 1950s during the Cold War to supply NATO forces but today 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 strikes, shipping traffic via the Strait of Hormuz, which supplies a fifth of the world’s oil, came to a halt.
Jet fuel exports from the five Gulf states fell by around 80 per cent in March during the Iran war as part of a wider disruption that wiped more than 10 million barrels per day from global oil supply.
Alkagesta’s Asad Huseynov told The National how the long process the company went through to get access to CEPS has enable it get holiday flights into the air.
“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 for May at the volume that he needed."
Mr Huseynov added "have actually have a contract with two holiday airline companies", though he wouldn't reveal which ones.
The company had previously been a cargo trader, shifting products around but never selling directly onto the market. After the war began, it sensed an opportunity for profit supplying jet fuel direct to airlines in Europe.
Mr Huseynov said Alkagesta went through a “lengthy process” to be allowed access to CEPS during which it had to present a detailed business plan.
“Every year there's a limited number of new customers that they can get on onboard 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, explained the company buys jet fuel from refineries suppliers north-west European including Exxon, Vitol and Petroineos, with whom its had relationships “for many years”.
The fuel is then shipped it via CEPS to customeer at airports including Frankfurt, Brussels and several smaller airports in Germany.
The company has a service agreement with the airports, who store the fuel in tank farms, and companies based there who then pump the fuel into the planes themselves.
This year it expects to trade 100,000 tonnes of jet fuel but believes the market for the product will remain steady in Europe, even as the continent moves towards renewables.
“I can say that that 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, 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.
This week Air France-KLM this week became the latest airline to announce that 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.
