Jet Fuel Hedging and Hydrogen Future in Aviation

ENEDEX is a DEX for trading and a platform for sustainable energy start-ups to raise capital and list their tokens in a decentralized and interoperable environment.

The main purpose of ENEDEX is to provide a decentralized environment for fast, democratized, accessible, and crypto-enabled trading of energy related futures and options. As trading of these derivatives is the backbone of jet fuel hedging strategies employed by airlines, let’s have a look at the future of current jet fuel trading, but more importantly let’s look at what the hydrogen-based jet fuel futures may look like.

Jet Fuel Hedging. Why?

The largest cost of airlines is also the most volatile — jet fuel. Airlines need to cap in fuel costs to stay afloat. Securing the jet fuel price exposure helps to protect their margins, comply with budgets and limit the risks of fluctuating jet fuel prices. Hedging jet fuel price exposure allows airlines to maintain control of their cost base, stabilise cash flows and reduce volatility in earnings as fuel represents about 15% of the airline’s total costs.

Most jet fuel hedges are purchasers of an oil future. A future is a contract to pay a stated price for an amount of oil on a particular date. For example, if the airline buys a future at $22 per barrel and oil goes up to $33, that contract protects $22 worth of jet fuel purchases from the expected 50% increase in price. Airlines typically hedge between one and two thirds of their expected fuel costs. Most airlines look six months forward in their hedging. Few hedges look beyond one year forward.

How does a Jet Fuel Future Work?

In essence, a futures contract obligates the buyer of the contract to buy the underlying commodity at the price at which he bought the futures contract. Similarly, a futures contract also obligates the seller of the contract to sell the underlying commodity at the price at which he sold the futures contract. That being said, in practice, very few futures contracts actually result in delivery, as most are utilized for hedging and are bought back or sold back prior to expiration. Today, futures are negotiated on a futures exchange, such as NYMEX or ICE, which acts as a neutral intermediary between the buyer and seller.

The main issue with centralized futures exchanges such as NYMEX or ICE is that they are intended for a wholesale market providing access to privileged large players such as the energy companies, utility providers and trading houses. On the contrary, ENEDEX’s decentralized exchange concept provides a neutral, secure and permission-less environment allowing for border-free, democratized access to traders and investors of any size to execute their own trades with settlements counting in seconds instead of days.

What is the Future of Jet Fuel?

Today the most utilized type of aviation jet fuel is the JET-A1 designed for usage by aircraft powered by gas turbine engines. Due to the environmental impact of mass jet aviation, a movement towards sustainable aviation started especially during the onset of the Covid-19 crisis in early 2020. A massive push towards alternative jet propulsion technologies has been initiated and one of the hot candidates for commercial success is the hydrogen fuel based propulsion systems. European governments, especially France, provided huge subsidies for development of hydrogen-based aircraft with Airbus being the current leader in the development of a hydrogen Zero Emission Aircraft.

With the onset of hydrogen as potential primary propulsion fuel for aviation, the topic of price level and most importantly price fluctuations of the hydrogen commodity will become the main concern of the future airline business models. One can therefore expect the rise of hydrogen futures and options derivatives trading as the main tool for execution of hedging strategies similar to the current jet fuel market.

The onset of this new business-critical commodity for aviation provides an immense opportunity for new ways of trading on decentralized exchanges such as ENEDEX. The secure, transparent, blockchain, and crypto-enabled trading promises unrivalled near real-time market and investment opportunities for small and large traders.

ENEDEX as Enabler for Decentralized Hedging

The vast opportunities of decentralized jet fuel and, in the future, hydrogen futures trading allow ENEDEX to act as both a revolutionary decentralized exchange for trading of energy-related futures and options as well as a platform for sustainable energy startups to raise capital.

Currently, energy trading is accessible only at wholesale level, fully inaccessible to smaller investors. New alternative energy sources will bring new opportunities when it comes to trading energy futures and option contracts related to green energy sources such as hydrogen or new flexible nuclear sources. The decentralized exchange ENEDEX will allow for revolutionary crypto-based trading of clean energy futures and options including democratization and access to trading to everyone thanks to fractional trading. Supported by cutting edge blockchain ecosystems of quantum-proof DCore and Polkadot with near-real time transactions settlements, everyone will be able to contribute to the rise of clean energy alternatives to the outdated gas-fired energy sources.

$ENE

$ENE provides the ability to hedge the financial exposures in energy and crypto offering with a solution to the financial elements of cryptocurrency mining for renewable energy and traditional oil and gas companies. ENEDEX listed products include cross pair trading of traditional and renewable energy products with BTC and ETH. ENEDEX will be implementing technologies of Polkadot and Moonbeam on top of DCore to offer near gas-less fees and functions as a platform for DeFi developers to build and list decentralized products. Join the revolution!

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