Jet-Fuel Merger Could Hinder China’s Effort to Decarbonize Its Skies, Insiders Warn

China is undergoing a major restructuring of its aviation fuel system, which may result in state-owned Sinopec Group gaining effective control over the country's jet fuel supply. Industry executives are concerned that this consolidation could hinder China's efforts to decarbonize air travel by limiting competition in the emerging sustainable aviation fuel (SAF) sector [para. 1].

Currently, China National Aviation Fuel Group Ltd. (CNAF) operates as the near-monopoly distributor of jet fuel for civil aviation. According to sources, CNAF is in the process of being acquired by Sinopec, a move that would vertically integrate refining, logistics, and airport fueling within one state entity. This transaction is still awaiting regulatory approval [para. 2]. While no official announcement has been made, CNAF’s Singapore-listed arm revealed on October 30 that a major restructuring involving another company was underway. Industry insiders confirmed that Sinopec, China’s largest refining company, is set to take over CNAF’s assets and operations [para. 3].

This merger is occurring at a time when demand for gasoline and diesel in China is plateauing due to the rise of electric vehicles, while aviation fuel remains a strong segment of the oil market. The transition comes as China is trying to ramp up the production of SAF, which is viewed by policymakers as crucial for reducing aviation emissions and fostering a new growth industry [para. 4].

However, industry experts warn that concentrating control of the fuel supply in a single company could undermine competition and innovation, especially in the nascent SAF market, where private sector involvement and technological advancement are most robust. The fear is that a state-run giant could introduce hurdles that would marginalize smaller SAF producers and slow sectoral development [para. 5][para. 6]. "Regardless of the system, maintaining a diverse supplier base – including for SAF – and satisfying aviation needs safely and cost-effectively should be central to competition," said an industry expert [para. 7].

SAF is made from waste oils, biomass, and other non-fossil feedstocks and is considered a practical solution for cutting aviation emissions. Aviation accounted for about 3% of global CO2 emissions from energy in 2024, a share that's rising as air traffic grows. SAF can reduce lifecycle emissions by up to 80%, and global demand could reach 360 million tons by 2050. For instance, the EU has mandated that SAF comprise 2% of jet fuel consumption by 2025 and 70% by 2050 [para. 8][para. 9][para. 10][para. 11].

China's SAF sector is still in its infancy, with two pilot programs launched in the past two years and production dominated by private companies. Five producers have received certification, exceeding a combined capacity of 1 million tons per year. Sinopec began producing SAF in 2012 and built the country’s first large-scale SAF facility with a 100,000-ton annual capacity in 2020, and it is planning further expansion [para. 12][para. 13][para. 14][para. 15][para. 16]. CNAF, too, has invested in SAF production and related facilities [para. 17].

CNAF controls delivery, storage, and refueling at more than 95% of China’s airports, making it a key intermediary between refiners and airlines through regulated pricing [para. 18][para. 19]. Consolidation under Sinopec would change this dynamic, giving it a significant advantage in controlling market access and pricing for both conventional and alternative aviation fuels [para. 20][para. 21]. Critics argue that this move risks creating a monopoly, reducing competition, and stifling the sector’s modernization and decarbonization efforts. Former CNAF executives and industry analysts advocate for more market-oriented reform, allowing multiple state companies and qualified private firms to compete rather than restricting control to Sinopec [para. 22][para. 23].