AVIATION
Air Canada's Fuel proof supply system
RICK MADONIK/TORONTO STAR
Ahmad Shah of Consolidated Aviation Fueling of Toronto supervises the refuelling of an Air Canada jet at Pearson airport. Air Canada imports its own jet fuel into Ontario. Aug. 26, 2008
Sep 13, 2008 04:30 AM
Chris Sorensen
Business Reporter
Tell Ahmad Shah to "fill 'er up," and you're going to need a bank loan.
On a recent afternoon, the 21-year-old was pumping 19,200 litres of jet fuel, worth about $23,000, into the wing of an Air Canada Airbus A-320 before it taxied down the runway at Toronto's Pearson International Airport and took off for Vancouver.
"It will take about 25 or 30 minutes," said a bored-looking Shah, who works for Consolidated Aviation Fueling of Toronto.
Wearing an orange vest and blue work uniform, Shah watched from behind mirrored sunglasses as a digital counter told him exactly how much of the straw-coloured liquid rushed through the hose over his head.
Bigger jets such as Air Canada's new Boeing 777s are even thirstier machines. Flying from Toronto to Narita in Japan, for example, requires roughly 120,000 litres of fuel, with a price tag closer to about $144,000.
"Now you know why we have a fuel surcharge," joked an Air Canada spokesperson over the noise of a taxiing jet.
Air Canada's fuel woes are well known. Even with the recent tumble of crude oil prices, the airline still plans to scale back flights and slash up to 2,000 jobs in order to offset a fuel bill that is expected to grow by $1 billion this year. And while the spot price of Gulf Coast jet fuel has dropped 22 per cent since its early-July peak, last week's closing price was still some 48 per cent higher than a year ago.
High fuel prices were among the culprits in the recent shutdowns of Ottawa's Zoom Airlines, Vancouver's Harmony Airways, CanJet's scheduled business and Jetsgo.
But while historically high oil prices affect airlines around the world, Air Canada officials say the issue is particularly acute in this country because of a "critical" lack of refining capacity to turn oil into jet fuel and other products.
It's a complaint that has also been levelled by motorists and politicians following refinery glitches – last year in Ontario and this year in Alberta – that caused price spikes and dry pumps at some gas stations. Just yesterday, local drivers were shocked by a 13-cent-per-litre jump in gas prices due to worries about the latest hurricane interrupting refinery output in the United States.
Air Canada deemed the situation so dire that it decided several years ago to break away from the grip of local oil companies and begin importing its own jet fuel into Ontario, creating a global supply chain that quickly became the envy of the industry when jet fuel prices soared.
Standing a short distance from Pearson's busy runways, Paul Whitty, Air Canada's director of fuel purchasing and supply, surveys the complicated network of silver pipes and pumps that lead to nine above-ground holding tanks and 17 underground tanks that collectively hold 17 million litres of jet fuel.
From there, jet fuel passes through a tangled system of valves nicknamed "spaghetti junction" and is pushed out underneath the airport's aprons, where it is drawn by trucks from hydrants in the ground.
In Toronto, airlines are responsible for purchasing their own jet fuel, but once it arrives at the airport it becomes part of a shared system owned and operated by the airlines. The arrangement is an unusual one. Elsewhere in the world, the infrastructure tends to be owned by the oil companies themselves.
Some of the jet fuel in Pearson's tank farm is piped directly to the airport from refineries in southern Ontario.
But nearly all of Air Canada's jet fuel – about half of the 2 billion litres consumed at Pearson every year – is purchased overseas and arrives by a combination of ship and rail before it is finally dumped from a truck into the system, similar to the way a gas station is re-supplied.
Whitty says Air Canada decided in 2002 to create its own fuel-supply chain because of concerns that the supply in Ontario, where most of Air Canada's flying originates, was not reliable enough to meet its fuel needs.
According to Whitty, rising demand for regular gasoline and new low-sulphur diesel fuels encouraged refineries to shift capacity away from making jet fuel, thereby reducing the overall supply and raising prices.
Roughly 80 per cent of the fuel consumed by Air Canada planes at Pearson now comes from refineries in the Middle East, South America and parts of Asia. A similar program on the West Coast meets about 75 per cent of the airline's fuel needs in Vancouver.
"There's no other airline on the planet that does this," says Whitty. "Airlines are typically a captive audience to their local refining community."
Air Canada's fuel is brought into the country on ocean-going freighters and is unloaded at a port in Quebec City, the furthest up the St. Lawrence Seaway the fuel-carrying freighters can safely travel. From there, it is either placed on a barge that travels up the seaway to Hamilton, where it is put in holding tanks until it's trucked to Pearson, or put on rail cars that travel to a depot located 26 kilometres from the airport. The fuel is then trucked in for the final stretch.
To get some idea of the quantities involved, consider that Air Canada burns through the equivalent of about 1,800 tanker-trucks worth of fuel every month at Pearson alone.
One truck tank of jet fuel is about enough to fly a jetliner from Toronto to Frankfurt, Whitty says.
There are attractive savings from buying globally in today's environment of high oil prices. Whitty estimates that Air Canada is currently saving about $80 million a year on jet fuel.
But the real motivator is maintaining a stable supply.
"At certain times of the year, Air Canada is sometimes considered a supplier of last resort to this airport," he says.
Air Canada's decision to immerse itself in the fuel importation business speaks to the larger question of refinery capacity – or lack thereof – in Canada.
Critics have blamed a lack of refining ability for a spate of gasoline shortages across Canada in recent years. In one instance, a fire at an Imperial Oil refinery in Nanticoke in February of 2007 combined with a strike by employees at Canadian National Railway Co. left hundreds of gas stations in Ontario and Quebec without any gas to sell.
More recently, a problem with the catalytic cracking unit at an Edmonton refinery caused the pumps to run dry in Alberta.
"A lot of the refineries in Ontario are old and antiquated," says Whitty. "These unanticipated shutdowns are becoming more and more frequent."
While the oil companies claim such situations are rare, observers say there is a reluctance to build more refining capacity into the system because of razor-thin margins. The last new refinery was built in Canada in 1984, while Ontario actually has fewer refineries today than it did just three years ago.
"Refineries are large capital investments," says Spencer Knipping, a petroleum adviser with the province's ministry of energy and infrastructure. "And as we go into the future with ethanol blends and all these developments, oil companies are getting antsy about these big capital projects."
Last month, for example, Shell scrapped a plan to build a 150,000 to 250,000 barrels-per-day refinery next to its existing plant in Sarnia, citing poor market conditions and rising construction costs.
While Knipping acknowledges infrastructure is currently "somewhat tight," he notes that oil companies and energy traders are able to import fuels from other provinces or other countries.
But even with its own carefully built supply line, Air Canada has not managed to completely eliminate the risk of running out of fuel at Pearson, its main hub.
The airport's existing tank farm only has enough fuel on hand for about two days of airport operations, which is not nearly enough of a buffer when you consider that everything from a bad batch of jet fuel to foul weather – common during the winter months – can put an unexpected dent in the re-supply schedule.
There have been times when the airport was nearly running on fumes.
"I've been here quite literally with a hand pump trying to get enough pressure to try and get the fuel out to the apron," says Jules Molinari, the general manager of Consolidated Aviation Fueling of Toronto, the consortium of airlines that owns and operates the fuelling infrastructure at Pearson. "It's a hand-to-mouth operation right now."
However, that will change next spring when a new satellite tank farm opens near the airport, boosting the supply of jet fuel on hand to about eight days worth.
The new facility, which consists of four giant above-ground storage tanks that will eventually hold some 40 million litres of jet fuel, is being built by the consortium at a cost of $50 million and will be connected to the existing tank farm by six kilometres of pipe.
The satellite tank farm will virtually eliminate the need for Air Canada to truck its jet fuel from a Toronto-area rail yard to Pearson. The addition of a spur will allow trains to travel directly from Quebec City to a railcar-unloading facility connected to the new storage tanks.
Whitty says it soon will take just 10 hours to offload 26 fuel-laden railcars, compared with 16 hours to unload 16 railcars at the current rail site. There is also room to expand the offloading site in the future as the airport's fuel needs grow.
Which raises the question: Why aren't more airlines importing their own fuel?
The answer, says Whitty, has to do with the geographic hurdles of building a supply chain into a country as vast as Canada, and with the long-term commitment needed to operate such a system.
There's also a severe lack of available infrastructure.
"These oil companies and energy trading companies have more or less captured all of the infrastructure needed to bring product into these regions," he says. "So, for example, the tankage that we've secured at the ports in Quebec City and Hamilton, had we not secured them a few years ago, we wouldn't have it today."
As a result, many of Air Canada's competitors are often left to scrounge for extra fuel at Pearson when supplies are tight.
Shortly before noon, a tanker truck bearing Michigan plates rolls into the lot at the airport's main tank farm. The driver hops out and begins connecting a hose to one of the farm's underground tanks.
"That right there tells you how tight this market is," says Whitty, noting that the truck wasn't hired by Air Canada.
"Someone is trucking in fuel all the way from Dearborn. And that can't be cheap."
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Air Canada's fuel management
Air Canada's fuel purchasing and supply program is just one piece of an overall strategy to manage the supply and price of fuel, which has become the biggest single expense for the airline ahead of labour. Others include:
• A systematic program of fuel hedging, in which the airline buys future contracts for related products such as crude oil in a bid to even out price swings in jet fuel.
• An extensive fuel conservation program that includes everything from flying planes more slowly to reducing cabin weight by dumping things like excess drinking water, newspapers and blankets.
• Fuel surcharges on airline tickets.
• A "tankering" program that consists of having individual planes fill their tanks with more fuel than is necessary at destinations where the price of fuel is lower.
Airline's move to import fuel makes it the envy of an industry held hostage by prices and shortages
Air Canada's fuel program (.pdf)