The Murky World of Avgas Prices

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If I were to break down the quest for an unleaded avgas into seasons, I think we're in the long, hot summer phase. From here until two years from now, progress may be like watching the grass grow. At AirVenture last month, the only meaningful activity was that Shell showed up to talk about its entry in the 100-octane sweepstakes without revealing much detail. But it's possible to read between the lines. In this longish podcast I conducted with two Shell executives in Oshkosh, you can glean the barest sense of where Shell is going and also a bit of spinning. More on that later.

So, at this stage, what do we care about? Mainly that a replacement fuel will get through the FAA's Byzantine PAFI approvals process, that it will have the required octane, that it won't require expensive recerts and, last, that it will be affordable. I think the first two are all but a given, the second two are open to debate. If Shell's fuel somehow stumbles, there's always the BP/Total/Hjelmco candidate. Swift is still in the game. For all we know, two could make the cut and the market will be left to sort things out. What could be more capitalistic?

The price point is another matter. In writing in this space, the accepted wisdom has been that the replacement fuel would be more expensive than 100LL is by some unknown amount. This is not just my blue sky opinion, by the way, but an informed judgment based on conversations with people in the petrochemical field actively involved in aviation fuels. They decline to be quoted, but will talk on the subject on a background basis.

The reasons for believing the replacement fuel will sell for more are several and sound. Avgas volume is in steady decline and has been for awhile. There are no more than seven refineries making it and the assumption has been that new entrants won't be lining up to get into the aviation gasoline business. Those that do will want a juicy margin on the investment they'll have to make to blend a new unleaded avgas. Avgas has traditionally been a high-margin, high-profit product for refineries and if they hate anything in this business, it's giving away margin or excess quality. They'll get every penny from it that the market will bear.

But Shell appears to be mildly challenging the higher price assumption. We don't know enough about the formulation to run it past our experts and we won't until the company has to show its intellectual cards to ASTM and the FAA, eventually. But it seems likely that Shell is angling to produce, through its R&D, a spec for a 100-octane fuel that could be blended under license by anyone who's interested. That might be Shell's refineries or someone else's. Nothing new about that in the petro industry, which is famous for producing fungible, universal products.

Furthermore, Shell says the assumption that the new fuel will require a high-quality aviation alkylate base misses the point, insisting that its magic sauce is how its additive chemistry interacts with a high-octane base to produce engine performance results. Our sources are skeptical of this claim, but are open-minded. Whether true or not, perhaps the new avgas could be blended outside the refinery fence and although that's done routinely for hundreds of other petrochemicals, the idea is new to avgas, as far as I know. That's probably because of the special handling requirements for tetraethyl lead, which is lethally toxic. It makes more sense to blend the locally produced alkylate with some aromatics, dose it with lead at the refinery and send it on its way.

Conceivably, then, unleaded avgas could be blended outside the refinery fence. That opens some intriguing possibilities. There are about 139 operating refineries in the U.S. and 660 worldwide. But in the U.S. alone, there are some 1500 terminals and bulk facilities capable of various kinds of product blending and distribution. If only a dozen of them were capable of and interested in avgas production, that would double the number of avgas sources, perhaps yielding greater geographic spread and more competition. The terminals could, conceivably, rail in the avgas components, blend them, then rail or truck out finished fuel. A source in the terminal business told me the concept pencils out, but since the components aren't known, neither can prices be estimated. Just understand that the components that go into avgas don't necessarily drive its retail price.

But reducing the distance to market reduces transportation costs and that's a net plus for the consumer. If it doesn't exert downward price pressure, it at least flattens the upward trend. Perhaps that knocks the legs out of higher prices being assumed, perhaps it doesn't. At least it's encouraging. If avgas and/or its components could be pipelined instead of railed, that would help, too. But the volumes involved are just too small to ever see pipeline transportation for finished fuel.

And, unfortunately, avgas volume remains dismally low and continues to decline. According to the Energy Information Administration, avgas reached a historic monthly low in March 2014, with 7.9 million gallons refined. Although it seasonally rebounded in April and May, the overall trend since 2006 has been downward. Avgas demand has declined by about 38 percent since 2000. There may be some signs that activity is picking up and demand is at least flattening, but it's too soon to say if this is an established trend. I'll put on my optimist hat and predict the decline will soon bottom out.

Even if it does, there's not likely to be much growth in avgas and this is certainly a consideration for anyone eyeing producing an unleaded 100-octane, whether a refiner or a blender. It has been widely noticed and remarked upon that ConocoPhillips, an aviation stalwart, declined to submit a candidate fuel to the FAA approvals process. Does this suggest that the company doesn't see a future in piston aviation fuels or is it content to let Shell develop the spec then produce under license? No one but ConocoPhillips seems to know and they aren't saying. Chevron and Exxon are also sitting it out.

If I owned an aircraft requiring 100-octane fuel, I wouldn't be particularly worried that the entire process will run off the rails and no fuel will emerge. There's enough business remaining, even with anemic demand, for refiners to make a buck. Someone will serve the market. If Shell—or anyone else—delivers a non-proprietary, readily blendable formula, maybe more companies will go where ConocoPhillips and Exxon fear to tread. We'll know more in a year or so. For now, we know squat.

Meanwhile, look for more detailed reporting from AVweb on avgas economics in the coming weeks.

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Comments (20)

This is somewhat unrelated, but I've heard from a few people that true 100/130 ("green" avgas) is still available in Hawaii and possibly Utah. Do you know if that's true? If so, why? From a practical perspective, 100LL has been accepted everywhere for ages, why have something different in such limited markets? And if TEL is the truly the threat that it seems that we're resigned to assuming it is, why not start there?

Posted by: Joshua Levinson | August 20, 2014 8:26 PM    Report this comment

One more question. For years if not decades, we've been hearing that lead-free avgas just couldn't happen. Numerous attempts by various groups have tried and failed. Now, suddenly, there are a few proposals in to the FAA group, and GAMI off doing their own thing, and all of the proposals look...very similar. Aviation alkylate with mesitylene or some other aromatic to boost octane. What's different this time around? Have our alkylates improved in quality? Was the problem before always cost?

Posted by: Joshua Levinson | August 20, 2014 8:49 PM    Report this comment

Paul, until 2 weeks ago I ran a small aircraft maintenance shop. The supplier of my consumables (oil, filters, etc), who presumably tracks such things, told me that avgas sales were down 90% (yes, 90%) nationally since 1999. Is there any way to verify this? I closed my shop because the overhead was killing me, but figures like 90% less GA hours in 15 years are spine-tingling, overhead be damned.

Posted by: Ripley Quinby | August 20, 2014 9:40 PM    Report this comment

Ripley, he must have been referring to local sales. National sales are not down by that much. Here are the EIA data pages:

http://tinyurl.com/lob63gp

http://tinyurl.com/qf4khl3

In 1999, production was 325.9 million gallons. For 2013, it was 186 million gallons. At 43 percent, that's bad enough, but it's not 90 percent. The EIA data, by the way, has been called into question by some people I know as being too low, but the directionality of it is probably correct.

Joshua, Chevron was making 100/130 in Hawaii. I think they still are. I used to know the reason but can't remember now. Might have been because of the quality of their alkylate required so much lead that they had to go to 130. The Salt Lake refinery ceased making avgas a few years ago.

As for the unleaded avgas couldn't happen question, what's different now is simply the will to make it happen. Since the 1980s, the government was never serious about regulating lead, the industry knew this and did little in the way of research. There was just no need. Now that it does appear to be serious, the solutions miraculously emerge.

Posted by: Paul Bertorelli | August 21, 2014 5:37 AM    Report this comment

Paul, those two links you shared are rather eye opening. Perhaps this is a more useful metric to demonstrate the decline in aviation. Avgas is already pricey as it is today. I can't imagine pay more for an alternative fuel. And to think how this will affect the affordability of flight and its impact on people's continued interest in flying.

Posted by: Amy Zucco | August 21, 2014 8:35 AM    Report this comment

The avgas production numbers are fairly grim, and directly reflect lower GA activity. Paul, do you think that there is a production floor, below which there really isn't economic value to the refiners? As production is lowers, the price would clearly increase ... what do you think the "break point" for fuel in the fly-for-fun market?

Thanks, GK

Posted by: George Kaplan | August 21, 2014 9:39 AM    Report this comment

That's a question for the ages, George. I have asked it of refinery experts and because of so many variables involved, no one seems able to put a number on it. Refineries tend to operate as independent business units, so what works for one, might not for another.

My guess is volume would have to be in the range of nail polish remover before no one would step up. Then again, maybe more nail polish remover is sold than avgas. I better look that one up.

Posted by: Paul Bertorelli | August 21, 2014 10:06 AM    Report this comment

All that is needed to help fight happiness is to read the declining GAMA statistics. All the bad news needed to motivate a united response to revitalize the industry is on record. I find it frustating that the stakeholders while seeing, feeling and talking about the decline and perhaps extinction of the class, are not assembling in force to instill growth.

In a small way, I am motivating and creating new-starts and certified pilots by donating my time and money for the cause. New-starts in aviation. It all starts with new pilots that in turn increase the demand for goods and services adding to the ranks of subscribers to various organizations like EAA, AOPA, and of course AVweb. Increasing costs is not the answer, capping costs and facilitating access to flight training is a start. Affordable new airframes and avionics is a need yet the manufacturers disregard affordability with the illusion that the market(?) will unconditionally accept.

Every pilot and organization is obliged to join in the rebuilding of the GA industry.

New airframes. Save GA !

Posted by: Rafael Sierra | August 21, 2014 10:34 AM    Report this comment

"the components that go into avgas don't necessarily drive its retail price."

Hah. No kidding. The commodity futures market has resulted in the cost of energy being 100% disconnected from the manufacturing production cost.

So wall street traders can make money by trading the product as if there were a shortage, when there is no shortage.

When gasoline was pushing close to $5 a gallon here in California my neighbor, who is a refinery engineer at a big local refinery told me "we're shut down". "all the tanks are full, we have tanker ships anchored 30 miles out who cannot unload because the crude tanks are full, as are the finished product tanks. So we can't run the refinery, no place to put the finished products."

There needs to be a connection between the cost of production and the sale price, when there is none the market can not function correctly.

Posted by: Steve Waechter | August 21, 2014 10:49 AM    Report this comment

It seems this is a positive feedback system. The price of fuel goes up, so there's less flying. With less demand it would seem the price would drop, but it goes up and of course there's even less flying. And on and on.

Posted by: Unknown | August 21, 2014 2:41 PM    Report this comment

The thing that is killing GA is this dumb idea of focusing on 100 octane and only 100 octane. Offer 93/91 for close to the price of MoGas (which is doable TODAY) and then worry about 100 octane.

Posted by: Mark Fraser | August 21, 2014 9:21 PM    Report this comment

Rafael--as long as the FAA keeps insisting that light piston airplanes need to be certified with the same scrutiny as airliners and business jets, that's not going to happen. That's why the homebuilt market is gaining momentum, too--last I checked, homebuilt completions were outpacing deliveries of certified piston aircraft. I suspect that trend will only accelerate.

Mark--exactly! There's no reason we can't set up another pump and make ethanol-free mogas available. I can already drive to any one of several gas stations in the area and get it; a couple more pumps at the airport would make it easier. I'm setting my RV-7 up to be ethanol-compatible and I won't be burning avgas unless there's no other option. The price difference should cover my hangar rent.

Posted by: Bob Martin | August 22, 2014 5:34 AM    Report this comment

Bob, I understand, that is the reason for all stakeholders in commercial and recreational aviation, pilots, mechanics, avionic techs, FBO's, OEMs, "Aviation News Resources", others and government to stop self-serving survival stratetegies and identify the industry's unchecked decline, unite and then facilitate and expedite the solution. Nothing is easy, we have overcome greater challenges but we need to gather now. Homebuilts are an asset but we still have to create pilots beyond the recreational segment. Pilots will bring a greater demand for goods, services and growth. We still have the greatest compilation of science and technology resources and the best and most aviators in the world.

New airframes. Save GA !

Posted by: Rafael Sierra | August 22, 2014 7:07 AM    Report this comment

Avgas production is way down since 1999, but a piece of that puzzle has to do directly with the cost of Avgas. Another piece has to do with a bad economy. And the third piece has to do with the FAA persecuting older pilots out of aviation. 2 years ago I switched to burning exclusively Mogas. I prefer Avgas, but the cost is simply too high for me. It's pretty clear from the maintenance I'm seeing that my engines prefer unleaded Mogas. Even when we have unleaded Avgas, the price point is going to be high enough that I will continue to burn E0 Mogas as long as I can get it. In the mean time, I continue flying more hours on less expensive fuel.

Posted by: Jeff Scott | August 22, 2014 10:01 AM    Report this comment

Thanks for the article Paul. Great information. But here's the part that most of in aviation don't understand. An article answering these questions would be helpful in putting the pieces of this Avgas puzzle. 1. In the 1970's lead was phased out of automobile engine. At the same time Avgas stopped being pushed through the national gasoline pipelines. 2. The additives that make up the different Octanes of gasoline are added at the local distributor, not at the refinery. We can still get "pure gasoline." 3. It's the transportation by truck or rail that adds cost to the price of Avgas. It's not just the fact that there is a small market that causes a 75% price premium over mogas. 4. Mogas without additives works fine in low compression aviation engines. We can get an STC to make it work, but homebuilders state that there is no real reason to not be able to run 89 no lead in low compression engines. 5. Lycoming and Continental have had over 30 years to resolve this issue from an engine manufacturing point of view. I would bet that there are few GA aircraft built between 1974 and 1990 that have not had a least one major overhaul.

So, I don't see this issue as a petroleum producer problem. I see this as an aviation engine manufacturer and the FAA's problem to recognize a problem long in coming but have not been willing to deal with the situation. It should have been an engine modification/re-design solution, not a fuels solution.

Please , Please enlighten us with an interview from Lycoming and Continental as to why they did not deal with this 20 years ago.

Posted by: Kevin Jarchow | August 22, 2014 12:01 PM    Report this comment

Kevin, I got a giggle out of your note. Somewhere, I'm sure a fellow named Steve Smith may be wanting to slit his wrists for it was a little shy of 20 years ago, I think, that he and a small group of Ham Standard engineers began developing what became the Continental PowerLink FADEC.

One design goal anticipated variable timing and knock detection to burn lower-octane fuels; basically automotive techniques. These were certified and fielded and might have eventually achieved the goal. GAMI was another company working on variable timed ignition. That research also died, for all practical purposes.

One reason for this is near zero market interest. As long as they had 100LL, buyers weren't interested. And the government wasn't serious about lead regulation so it was a solution without a problem. It would eventually come to a head and now it is, placing the ball back in the fuel providers' court.

Re-engining the current 100-octane fleet with engines that don't require that fuel is an economic non-starter.

Posted by: Paul Bertorelli | August 22, 2014 12:44 PM    Report this comment

At the risk of getting panned by the regular posters to these blogs, I don't understand why everyone complains about the cost of Avgas. I learned to fly in April of 1981 when the Consumer price index (CPI) was 89 and Avgas cost $2.00/gallon. In April of 2014 the CPI was at 237, which should make Avgas $5.33. The price varies at my airport each delivery, but I believe it is currently $5.59, not too far off. I don't like paying any more than anyone else, but neither do I want to go back to how much I was earning in 1981!

Kind of like the cost of learning to fly. When people ask me what it costs to learn to fly I answer "the same as when I learned in 1981." That usually gets their attention, but it's true. In 1981 the cost of two semisters at a public university was about $1,400 and today it is about $12,000. It cost me $1,300 and change to learn to fly in 1981. One should certainly be able to learn to fly today for less than $12,000. $200/hour for 50 hours is $10,000.

YMMV

Posted by: Joel Ludwigson | August 22, 2014 1:13 PM    Report this comment

When I bought fuel yesterday afternoon the cost at my airport (KSGS) was $5.33/gallon. I had to laugh when I realized what I had posted yesterday morning. So based on what I paid yesterday the cost in todays inflated dollars is exactly what it was in 1981 when I learned to fly. And I am in a much better position to afford it today than I was in 1981.

Posted by: Joel Ludwigson | August 23, 2014 11:32 AM    Report this comment

" I am in a much better position to afford it today than I was in 1981." Unfortunately, Joel, the same cannot be said for a majority of today's owner/pilot population - many of whom now are living on fixed incomes. They're being compelled to constrain their standards of living, and personal flying is a prominent target of that restraint. True story.

Posted by: Thomas Yarsley | August 23, 2014 12:11 PM    Report this comment

What would be interesting is if the constituent parts could be mixed at the local airport. Owner if that would help drive the price down?

Posted by: Richard Mutzman | August 23, 2014 2:14 PM    Report this comment

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