A combination of low oil prices, a rapidly expanding middle class in Asia and booming freight markets driven by expanding world trade and e-commerce are fueling increased demand for jet fuel worldwide. However, that growth does have potential risks that could hamper demand, namely a greater penetration of sustainable aviation fuels (SAF) and efficiency gains, according to new research from refining market analysis by business information provider IHS Markit (Nasdaq: INFO)

Global jet fuel demand will rise from around 8 percent of total refined product demand in 2017 to more than 10 percent by 2040, according to the IHS Markit Refining and Marketing Insight: Jet fuel demand flies high, but some clouds on the horizon analysis. The global market for jet fuel will reach more than 9.5 million barrels per day by 2040, compared with demand of nearly 7.45 million barrels per day in 2018, IHS Markit said.

“Thanks largely to low oil prices and strong growth in air travel, particularly in Asia, jet fuel is a fast-growing product, with global jet-fuel demand growth comfortably exceeding 4 percent in the last two years,” said Louise Vertz, director, refining and marketing research at IHS Markit, and lead author of the IHS Markit analysis. ”In a refined-fuel market that has had sluggish annual growth of just shy of 1.5 percent overall, that is a bright spot for refiners, and is one of the few refined products we expect to see gain consistent demand growth through 2040 However, there are some potential challenges that could inhibit that demand growth, particularly increased market penetration of sustainable aviation fuels and increased fleet efficiency.”

Air travel growth is set to continue its strong performance. The International Air Transport Association’s (IATA) mid-year economic report for passenger traffic—measured in revenue passenger kilometers (RPKs), is expected to grow by 7 percent in 2018, after increases of 7.4 percent and 8.1 percent in 2016 and 2017, respectively. Freight, which is measured in freight ton kilometers (FTKs) is expected to grow 4 percent in 2018, down from 9.7 percent in 2017, which, for context, was more than double the 3.6 percent performance seen in 2016, and the strongest year since the rebound from the global financial crisis.

It is little surprise then that jet fuel has outperformed most other oil products in registering annual growth of more than 4 percent in 2016 and 2017, and will continue to perform well, with average annual growth projected at more than 2 percent to 2025, IHS Markit said.

Although low oil prices have contributed greatly to recent growth in air transportation, price is only part of the picture, IHS Markit said. “With lower fuel costs, airlines have lowered ticket prices, which has certainly contributed to the strong performance, and jet fuel has a high degree of price elasticity,” said Sandeep Sayal, vice president of refining and markets research at IHS Markit, and a co-author of the IHS Markit analysis. “One of the biggest factors in jet-fuel demand, on a global level, has to do with increased wealth in the form of rapid expansion of the middle class, particularly in Asia. This has had a major impact on air travel, and we expect this trend to continue, particularly in emerging markets, as about 160 million people are expected to join the middle class each year to 2025,” Sayal said.

OECD markets currently hold 58 percent of the jet-fuel market. By 2040, IHS Markit expects OECD markets to account for about 48 percent of world jet-fuel demand as non-OECD markets, driven by growth in Asia, begin to overtake OECD markets in the mid-2030s. China, India and Indonesia are all rapidly growing aviation markets, and both Thailand and Japan are boosting capacity.