Tuesday, May 1, 2012

To control jet fuel costs, Delta buys its own refinery


** Updated at 5:05 p.m.**

Delta Airlines has made a bold move to control the cost of the fuel its jet fleet consumes by buying its own refinery outside of Philadelphia.

Delta said today its subsidiary Monroe Energy agreed to buy ConocoPhillips’ Trainer oil refinery, located on the Delaware River about 10 miles south of Philadelphia, for $180 million, and will enter into deals with BP and ConocoPhillips for sourcing and marketing of fuel.

The deal to purchase the refinery, which can process up to 185,000 barrels of crude oil per day, was made possible because of $30 million in assistance from the state of Pennsylvania.

The plan is for Delta to produce as much jet fuel as it can get out of each barrel of oil and then make gasoline, which it will hand over to BP, swapping it for jet fuel in other parts of the country.

The company estimates that will meet 80 percent of its annual fuel needs.  In 2011, Delta used 3.86 billion gallons of jet fuel, for which it paid $11.8 billion, or 36 percent of its operating expenses.

Some analysts were skeptical.

"It goes way beyond Delta’s core competency," said Stephen Schork, editor of energy publication The Schork Report. "When you have companies like Hess, Sunoco and ConocoPhillips refining oil on the East Coast for generations and they can’t make money on it, I don’t know how Delta, with this not being their expertise, can do it."  

In September, ConocoPhillips discontinued manufacturing petroleum products in Trainer citing severe market pressure on East Coast refining due to product imports, weakness in motor fuel demand and costly regulatory requirements.

The decision resulted in the elimination of the jobs of some 700 employees and contractors at the facility.

Since the refinery was idled, workers, many of whom are represented by the United Steelworkers Union Local 10-234, have lobbied various state and federal officials to save their jobs.

In March, ConocoPhillips administrators decided to extend the sale of the Delaware County plant by two months to allow more time for discussions with potential buyers to take place. Initially, the deadline had been March 31, and union officials raised concerns that management declared the company’s intention to begin demolition of the site at that time.

Related:
Officials hold out hope for Marcus Hook refinery 
Delta to Buy ConocoPhillips Refinery for $180 Million
Delta, ConocoPhillips finalize deal for Trainer refinery
Delta buys ConocoPhillips' Trainer refinery in Pennsylvania to make jet fuel 
Q&A: What does Delta's refinery purchase mean?


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