Avgas to the Fore ... Again

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Itís possible to simultaneously make much of and nothing of last weekís announcement from the FAA that five entities have submitted nine proposals for an unleaded replacement for leaded avgas. Iíve spoken to several sources in the industry about this and no one seems to have much detail on the proposals. But one thing seems likely, at AirVenture, the bolt heads will be torqued off their stems putting a positive spin on this.

As we reported last week,†the candidate fuels come from five entities: Afton Chemical Co., Avgas LLC, Shell, Swift Fuels and a consortium of BP, the French refiner Total and Hjelmco, which is based in Sweden and has market distribution in Europe. Not on the list is General Aviation Modifications, Inc. Thatís not because theyíve given up on their G100 product, but because theyíre pursuing approval through an STC process.

Shell and Swift weíve heard about and we have an inkling of what fuels theyíll submit. The BP/Total/Hjelmco consortium, while a surprise, is composed of three known avgas producers so we can sort of imagine what they might come up with. Unknown is whether the play is aimed at a European strategy or something else. Joint ventures are big in the energy industry and this is one way of staying in the game, perhaps, without much investment.

Avgas LLC is a company no one seems to have heard of and my attempts to find out who and what they are came up dry. Afton is a maker of chemical petroleum additives whose corporate DNA extends back to the Ethyl Corporation, the original maker of tetraethyl lead created by General Motors and Standard Oil in 1923. It requires no great leap to imagine theyíre proposing some kind of additive to boost aviation alkylate to 100 octane. We may or may not find out. Ever.

The larger story is whoís missing from the list: ConocoPhillips, Exxon and Chevron. Between the three of them, theyíre responsible for a significant volume of avgas refining in the U.S., if not the majority of it. So what does it mean that theyíve decided not to submit a candidate fuel? In an era of eroding volume, are one or all three about to exit the business, ceding it to Shell? Or are they simply standing on the sidelines while someone else does the heavy lifting of getting a new avgas spec approval and waiting to cut a licensing or production deal? How will this impact distribution, competition and price? If you have the answer to this, favor us all with your wisdom in the comment section. Iím sure I donít know. But Iím highly skeptical of the argument that itís not significant that these three companies donít seem to have skin in the game.

Whatís next? The FAAís Piston Aircraft Fuels Initiative will now winnow this gang of nine down to a smaller gang, probably three at first, then just two. Those two will then go through a detailed fuels evaluation and testing process and, presumably, emerge at the other end as approved, marketable fuels. As I explained before, I think the entire PAFI concept and procedure is profoundly flawed and almost designed to subvert how free markets bring the best products to the fore. That doesnít mean I think it will run off the rails and fail to disgorge a workable fuel or two, maybe even within the proposed 2018 timeline. Anyone operating an aircraft requiring 100-octane fuel or thinking about buying one isnít at much risk for having no fuel to buy, in my view. Iíve always felt that something will come along.

But price, thatís another matter. No one Iíve spoken to thinks the unleaded replacement will be the same price or cheaper than 100LL. So if itís likely to be more expensive, how much more expensive? My wild-ass, blue-sky hope is that it will be within 50 cents of current avgas, but $1 more wonít surprise me. If itís more than that, that downward trend line describing avgas production might spiral further lower and those arenít the market conditions that give producers incentive to lower prices to increase volume. In other words, as this perverse industry has done in general, the less it sells, the more it charges.

At last Decemberís ASTM meeting in Tampa, the FAA revealed that it will consider the business prospects of companies submitting fuel as one of its evaluation points. Not surprisingly, this struck a sour note and appears to mean if the mysterious Avgas LLC has the best product imaginable, the FAA could still dump it because it doesnít like the companyís P&L. This is the antithesis of free market economics and but one flaw in the PAFI process. Another is that the FAA has funds sufficient to test only two fuels, possibly precluding the upstart thatís willing to invest its own capital in testing to prove that itís got the better mousetrap. Various interests in GA, by the way, signed on to this process. It wasnít solely an FAA decision but was ground out over months during the UAT-ARC group tasked with getting the fuels approval process off dead stop.

Hereís another unknown: what impact will the FAAís two-fuels strategy have on price and competition? In other words, are two fuel choices enough? My guess here is that yes, two probably are enough and more might not be a good thing. On the other hand, isn't that a question that the free market should answer, unfettered by FAA judgement of what's good for the market? In that sense, this is a shining example of how regulation the industry said it wants stifles innovation because the government doesn't have the money to do the oversight. Like I said, perverse.

The larger price/competition issue is how many refiners decide to produce the new avgas. One theory holds that since it wonít have lead, more refiners can and will make it, increasing choices and reducing transportation costs. But I donít buy this. To get to 100-octane, I think itís going to take a pretty good aviation alkylate base and not many refiners have that capability or interest. If fewer refiners are involved, there will be a predictable effect on price and distribution.

Last, the PAFI process itself now enters the opaque phase. Itís quite secretive because the FAA is following federal contract rules. Even industry people involved in it donít have a complete picture of whatís going on; it appears quite compartmentalized. And thereís no public advocate. Oil companies, airframers and engine companies can look after their own interests, at least somewhat, but those interests donít always align with those of the customers.

Six months ago, the buzz was that the FAA was worried that not enough companies would show interest in unleaded avgas. Now that five have, I suppose we can put that to rest. Personally, my disappointment is in not seeing ConocoPhillips take an interest. Phillips has had a long and glorious history in general aviation. Seeing them sit out the avgas competition could be interpreted as a Ö lack of confidence. Not that I can exactly blame them.

Link to FAA presentation on how PAFI works. †(PDF)

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Comments (12)

Paul;

Does this process include, as fundamental constraints, requirements for fungibility (including both in-ground and on-wing miscibility) and for blanket-use-approval, i.e., no engine-specific or airframe-specific STCs or other approvals will be needed?

-YARS

Posted by: Tom Yarsley | July 17, 2014 12:29 PM    Report this comment

Yes, more or less. It's supposed to yield a fuel with minimal impact on fleet integration, or as the FAA sez:

"Ability to identify a replacement unleaded avgas with least impact on the fleet and facilitate an orderly transition..."

I posted a link above to the FAA presentation in Tampa. I am sure you will found the flow chart worthy of Rube Goldberg's best effort.

Posted by: Paul Bertorelli | July 17, 2014 12:55 PM    Report this comment

Hjelmco Oil, BP and TOTAL jointly are the most influential and most ready. The US market is their target with what I estimate an annual usage of about 170 million gallons or about 0.15% of the automobile fuel consumption. Relatively small market, less players, higher prices. EPA should be happy. Now comes the conversion - is it going to be gradual or abrupt? What will the conversion costs be for me and the self-serve outfit I buy fuel from? What do I need to do to my C172 with an Lyc. O-360 to start using unleaded fuel? And finally, is there anyone interested in a C172 selling cheap?

Posted by: Rafael Sierra | July 18, 2014 9:02 AM    Report this comment

This is another situation of the government trying to pick winers and losers. Sort of an aviation Solindra. My question that does not appear to be considered is why do we need another fuel that is only 0.15% of the market if we want to keep fuel cost manageable? Could the answer be a retrofit of existing engines which need 100LL with FADEC type of system that would allow use of an automotive type of gasoline without detonation or loss of performance? Would it be feasible to subsidize some of the cost of such a retrofit? Sort of a cash for clunker fixed timing magneto ignition. As a potential aircraft purchaser I am reluctant to invest hard earned cash into an aircraft that may end up being worth its value in scrap metal. I always get very defensive when I hear that the government agency is leading the effort to find a solution. We all know how well the FAA considers our financial interests. That said we are at the mercy of the Feds and will have to wait to see what happens. In any business uncertainty is is the killer of investment. With the FAA in charge and the process that has been chosen, the uncertainty factor is very high. Perhaps, I will consider an EAB with an engine that is fuel flexible. Thanks Paul for bringing this subject to the forum.

Posted by: Leo LeBoeuf | July 18, 2014 9:54 AM    Report this comment

I have to say your thoughts on the price of this future mystery fuel cause me concern in that I have what I consider a sizeable investment in one of the last of the piston twin Cessna's. What happens to the value of this airplane with an across-the-board $1 jump in avgas? Sadly, I think I know the answer.

Posted by: JOHN EWALD | July 18, 2014 10:02 AM    Report this comment

I reviewed the FAA presentation deck that Paul linked to. Nothing in it gave me any confidence that the FAA's plan includes any REQUIREMENTS for fungibility or for universal ( i.e., no engine-specific or airframe-specific STCs or other approvals) approval-for-use. My impression was that both of those items are in the Agency's "nice to have" category. If anything, my confidence in a positive outcome has been reduced. Somebody please explain to me why I'm wrong.

Posted by: Tom Yarsley | July 18, 2014 10:21 AM    Report this comment

I'm convinced that all of this fed (EPA) imposed environmental sanction on aviation fuel will end badly for General Aviation with the price of the replacement 100NL skyrocketing comparable to what is already happening or has happened in Europe forcing them to make the move to diesel engines. For that reason alone I have turned my attention to the EAB market where there are engines compatible with (prefer) Auto-gas.

Posted by: Paul D. Young | July 18, 2014 12:39 PM    Report this comment

I got it. It is another plot by the man to keep the flying brother down.

Posted by: Rafael Sierra | July 18, 2014 1:15 PM    Report this comment

Plain and simple, this is how the EPA and like minded people eliminate general aviation which is their ultimate goal. The vehicle and bad guy is lead. The method is elimination via the FAA. The goal is to continually raise the price until ga is essentially destroyed. Fewer users of lead free fuel means higher prices. Higher prices means fewer and fewer users. It's self fulfilling until there is no more ga. So sad but true. Actions speak louder than words and theirs (EPA) have and continue to speak volumes. No surprises here. Just sadness.

Posted by: Thomas Cooke | July 18, 2014 2:29 PM    Report this comment

Right on, Raf. Dig this rap; without enough bread for fuel and a pad for the plane, I'm thinkin' of gettin my groove back at a passion pit with a cute paper shaker again. What a gas!

And no need to be bummed out, Tom Cooke. Any cat that flies can clean up a drag on his own. Don't fink out on GA or your fellow beautiful people. Forget the fuzz, hang loose, we'll be back in fat city someday and show the squares we didn't wig out.

So let's tear it up!

Posted by: David Miller | July 18, 2014 3:47 PM    Report this comment

I like it Dave. I like it.

Posted by: Thomas Cooke | July 18, 2014 5:32 PM    Report this comment

This is a very appropriate topic yet somehow I finding it exasperating. In trying to understand the severity of the "problem", I was stunned to find out that TEL (Tetraethyl Lead) is toxic affecting the nervous system, red blood cells and cardiovascular and immune systems especially on "children due to their developing nervous system" according to the FAA's Fact sheet on Leaded Aviation Fuel of June 19, 2013.

(http://www.faa.gov/news/fact_sheets/news_story.cfm?newsId=14754&omniRss=fact_sheetsAoc&cid=103_F_S)

Since I grew up in Los Angeles CA, during the 40s and 50s and 60s, in a midst of pollutants to the max, I can understand the problem and subsequent automobile ban on leaded fuel. However, cautiously reflecting on the magnitude of the avgas leaded fuel contaminants emitted by our GA fleet out of the total LOW LEAD fuel consumption, I believe that the problem is insignificant and getting infinitesimally smaller thus the "sympathetic" plan should be shelved, put aside, discarded, done away with as it is contaminated by polluted minds. Thank you very much.

Posted by: Rafael Sierra | July 19, 2014 9:32 AM    Report this comment

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