How the energy shock has reshaped jet fuel economics

Hello and welcome to Energy Source, coming to you from London.

The market is still grappling with whether ceasefire talks between the US and Iran will lead to a reopening of the Strait of Hormuz, a vital shipping lane that was virtually shut after the start of the war.

Gunvor chief executive Gary Pedersen warned that prices could become “very choppy” between April and June, a typically softer period for demand, with markets increasingly driven by geopolitical headlines rather than underlying fundamentals.

Meanwhile, Washington is stepping up pressure on domestic producers as high oil prices begin to bite. Donald Trump’s administration has urged US oil companies to increase drilling in a bid to boost supply and contain price rises triggered by the Iran conflict.

And in other news, my colleagues Martha Muir, George Steer and Jamie Smyth have a story about how shares in Fermi, a company planning to build the world’s largest data centre, plunged following the resignations of its chief executive and finance director.

In today’s newsletter, we look at how a renewable jet fuel producer is looking at the market dynamics as the war has pushed up the price of its fossil-fuel counterpart. Plus, Jamie reports on a legal effort to prevent BP from starting a new $5bn deepwater drilling project in the Gulf of Mexico. Thanks for reading, Ryohtaroh

Asia’s biggest renewable jet fuel producer to announce new plant soon

The world’s second-largest renewable jet fuel producer, EcoCeres, is preparing to announce plans for a third refinery “soon”, as it seeks to capture growing demand in Asia and Canada.

Matti Lievonen, chief executive of the Hong Kong-based group, told the FT that the company would expand capacity as airlines and governments reassess the role of sustainable aviation fuel following disruption to Middle Eastern crude oil flows.

SAF, which is produced from waste oils and animal fats, is less dependent on crude supply from the region, with the conflict having driven up prices and tightened availability of conventional jet fuel.

Lievonen said EcoCeres would continue investing to “at least maintain market share, probably even increase it”, adding that “we do not stop with two plants . . . there is more to come”.

While he did not provide a detailed timeline, he said construction of the next refinery would take about two and a half years once approved, with a final investment decision expected “very soon”.

Backed by Bain Capital, EcoCeres has rapidly expanded its footprint, opening biofuel refineries in China and Malaysia. Industry analysts estimate its capacity trails only that of Neste, which can produce about 1.5mn tonnes of SAF annually.

Neste is investing €2.5bn to expand its Rotterdam refinery, a project expected to lift capacity by more than 60 per cent after its planned full operation in 2028.

Lievonen, who was previously Neste’s chief executive and led its push into biofuels, said demand was emerging from Asia, Australia and Canada as governments move to tighten blending mandates to curb aviation emissions. He added that countries in Asia in particular were increasingly viewing biofuels through the lens of energy security, given the availability of regional feedstocks.

“People are thinking a bit differently now . . . it’s not only to decarbonise [aviation], but it’s also the security [of] supply,” he said.

Hong Kong-based EcoCeres said it collects used cooking oil from about 350,000 restaurants across China, ranging from large fast-food chains to small family-run outlets.

Conventional jet fuel prices have surged since the conflict in the Middle East began in late February, more than doubling from prewar levels. While this has narrowed the price gap with SAF to historic lows, renewable fuels remain significantly more expensive.

SAF was still about 60 per cent costlier than fossil jet fuel last week, limiting its uptake among airlines. Production volumes also remain too small to meet global demand.

The rise in fuel costs has forced airlines to consider cancelling flights or increasing fuel surcharges, potentially weakening overall demand. Because SAF consumption is largely driven by government mandates — including a 2 per cent requirement in Europe from 2025 — any reduction in flight activity could weigh on demand.

Some countries have already delayed policy implementation. Singapore has postponed the introduction of a levy designed to promote SAF blending for a few months, citing uncertainty in fuel markets.

Market observers also said buyers had cancelled SAF tenders soon after the war began, as they assess the impact of the conflict. Lievonen said delayed demand could recover later this year, but cautioned that market conditions over the next one to two years remain uncertain. (Ryohtaroh Satoh)

Green groups sue to block BP’s $5bn deepwater drilling project

Environmental groups have sued the Trump administration to halt its approval of a $5bn deepwater drilling project being developed by BP in the Gulf of Mexico.

In a lawsuit filed at the US Court of Appeals for the 11th Circuit, the groups claim the Department of the Interior approved BP’s Kaskida development even though legally required information was either missing or “significantly flawed”.

The legal filing was made public yesterday, the 16th anniversary of the Deepwater Horizon disaster, an accident at a BP drilling rig in the Gulf of Mexico that killed 11 people and caused the worst oil spill in US history.

The Center for Biological Development, one of several groups challenging approval of Kaskida, said BP failed to demonstrate it had the experience, expertise and certified equipment to conduct safe drilling under extreme conditions at the location.

BP is expanding oil production in the Gulf of Mexico, as it pivots back towards fossil fuels as part of a strategy aimed at boosting profits under new chief executive Meg O’Neill. Kaskida is an important part of its plans to grow production, with discovered recoverable resources at the project estimated at about 275mn barrels of oil and gas.

Kaskida, which is located in the Keathley Canyon area of the Gulf of Mexico about 250 miles south-west of New Orleans, would deploy so-called 20K technology, which enables oil companies to drill at extreme depths and high pressures. Chevron and Beacon Offshore Energy have already deployed this technology in the Gulf.

BP said it believed the lawsuit was unfounded and singled out the company in an apparent effort to block not only the Kaskida project but all future offshore oil and gas development in the US.

“BP is fully confident in our Kaskida development plan and our ability to deliver this offshore project safely, responsibly and in compliance with US regulations and industry standards,” said Paul Takahashi, a BP spokesman.

He said Deepwater Horizon had forever changed BP. “The lessons we learned and the changes we made — from tougher safety standards to better oversight — remain at the forefront of who we are and how we operate every day.”

Charlotte Taylor, a spokeswoman at the DOI, said the department did not comment on ongoing litigation but added that America sets the global standard for energy production. 

“We do it cleaner, safer and more reliably than anywhere in the world . . . The Kaskida platform represents a major step forward, unlocking more than 275 million barrels of previously unrecoverable oil in the Gulf.” (Jamie Smyth)

Power Points

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore and Ryohtaroh Satoh, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.