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Delta Makes Bid For Oil Refinery?  
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Posted (2 years 8 months 4 weeks 2 hours ago) and read 24245 times:

I came across this today

http://www.delcotimes.com/articles/2...news/doc4f7b0c749d5f8261554868.txt

I know Delta has been "diversifying" their business as of late. Scooping up some charter company to expand Delta Private Jet. The GOL deal. The MRO company their going into with Aero Mexico, etc. etc. but an oil refinery?

Thoughts? Their angle?


What gets measured gets done.
192 replies: All unread, showing first 25:
 
User currently offlinelitz From United States of America, joined Dec 2003, 1788 posts, RR: 0
Reply 1, posted (2 years 8 months 4 weeks 2 hours ago) and read 24202 times:
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The angle seems quite clear ... presuming this isn't a case of someone being 2 days late for the 1st of the month ...

An airline that makes its own jet fuel is beholden solely to the price of a barrel of oil for the source material for the refinery ... and if they can undercut the market price for the end-product (jet fuel) with that refinery, they can reap savings over the competition on their fuel needs ... with a side bonus of being able to sell off the undesired byproducts for additional profit.

I have no clue if there's any way to do so profitably ... or what this thing's production output would be compared to their needs ... but I'm sure someone more in the know can start throwing numbers up.


User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9700 posts, RR: 15
Reply 2, posted (2 years 8 months 4 weeks ago) and read 23569 times:

Quoting litz (Reply 1):

An airline that makes its own jet fuel is beholden solely to the price of a barrel of oil for the source material for the refinery ... and if they can undercut the market price for the end-product (jet fuel) with that refinery, they can reap savings over the competition on their fuel needs ... with a side bonus of being able to sell off the undesired byproducts for additional profit.

right. May not be able to control the price of oil but this should help with Jet A prices. (if anything make them a little more stable.)

Quoting FlyASAGuy2005 (Thread starter):

the idea is they can hopefully get the control of price of fuel a little. I had heard this was coming....but its been coming for as long as i have been alive. Hell maybe they will get a true 100 seater too.   



yep.
User currently offlineLAXintl From United States of America, joined May 2000, 26170 posts, RR: 50
Reply 3, posted (2 years 8 months 3 weeks 6 days 23 hours ago) and read 23485 times:

Several airlines have their fingers in the energy business.

Here in the US for example United Airlines is involved with United Aviation Fuels Corporation and also United Cogen based in San Francisco a power projects/natural gas company.

Additionally various purchasing, delivery and storage systems around the US belong to airlines or consortium's of airlines.



From the desert to the sea, to all of Southern California
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 4, posted (2 years 8 months 3 weeks 6 days 23 hours ago) and read 23459 times:

Quoting FlyASAGuy2005 (Thread starter):
Thoughts? Their angle?

Back in the 70s, DL owned their own pipeline, but I don't remember when they sold it.....probably when the oil business went sour in the late 80s.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinecatiii From United States of America, joined Mar 2008, 3094 posts, RR: 4
Reply 5, posted (2 years 8 months 3 weeks 6 days 23 hours ago) and read 23394 times:

Quoting mayor (Reply 4):
Back in the 70s, DL owned their own pipeline, but I don't remember when they sold it.....probably when the oil business went sour in the late 80s.

I think it was called Epsilon, right?


User currently offlineenilria From Canada, joined Feb 2008, 7720 posts, RR: 15
Reply 6, posted (2 years 8 months 3 weeks 6 days 23 hours ago) and read 23307 times:

Quoting litz (Reply 1):
I have no clue if there's any way to do so profitably ... or what this thing's production output would be compared to their needs ... but I'm sure someone more in the know can start throwing numbers up.
Quoting DeltaL1011man (Reply 2):
right. May not be able to control the price of oil but this should help with Jet A prices. (if anything make them a little more stable.)

This is happening because of the growth in the crack spread and the variance between Brent and WTI prices. You can be sure this will only help Delta and I wouldn't count on it doing anything for JET A prices otherwise. There is sufficient existing supply. The issue is the profit margin on "cracking". If Delta opens a JET A refinery another refinery will probably convert from JET A to something else to offset the glut, but Delta will benefit by profiting from the crack spread instead of being beholden to it.


User currently onlinedoug_Or From United States of America, joined Mar 2000, 3442 posts, RR: 3
Reply 7, posted (2 years 8 months 3 weeks 6 days 23 hours ago) and read 23252 times:

Quoting litz (Reply 1):
An airline that makes its own jet fuel is beholden solely to the price of a barrel of oil for the source material for the refinery ... and if they can undercut the market price for the end-product (jet fuel) with that refinery, they can reap savings over the competition on their fuel needs ... with a side bonus of being able to sell off the undesired byproducts for additional profit.

I can't imagine Delta will actually use the products refined at this facility, at least not in larger quantities than any other airline. The idea would presumably to act as a hedge- when Jet A prices were high the refineries profits would offset higher fuel costs at DL, increasing financial stability.



When in doubt, one B pump off
User currently onlineprebennorholm From Denmark, joined Mar 2000, 6545 posts, RR: 54
Reply 8, posted (2 years 8 months 3 weeks 6 days 22 hours ago) and read 23015 times:

Quoting FlyASAGuy2005 (Thread starter):
Thoughts?

To me this seems rather silly. But then my view may be colored by the fact that I have spent all my professional career in the oil business.

If my company had owned only one (or a few) refineries instead of dozens, then that part of the business would have run with great losses year on year.

Refineries are very hi-tech business nowadays. Large scale is the only way to provide profitability.

Imagine an airline company with only one airliner, but having own training department for new crews, own maintenance facility including D check, own catering, own IT department for ticketing, etc, of course there is no way it could work.

In the same way "my" oil company with well over a hundred thousand employees world wide generates a couple of thousand airline pax each day. Enough traffic to keep a few extra airliners busy year around. Should we run our own airline company? Of course not.

We do, however, have a few biz jets. They are used surprisingly little for bringing high management around - they use scheduled airlines. The biz jets are to a high degree used for bringing specialist teams around the world for for trouble shooting at our refineries.



Always keep your number of landings equal to your number of take-offs, Preben Norholm
User currently offlineN62NA From United States of America, joined Aug 2003, 4594 posts, RR: 8
Reply 9, posted (2 years 8 months 3 weeks 6 days 22 hours ago) and read 22882 times:

Didn't VS announce a few years ago they would produce their own bio-fuels plant to become "fuel independent?" Stranger things have happened!

User currently offlineBD338 From United States of America, joined Jul 2010, 740 posts, RR: 0
Reply 10, posted (2 years 8 months 3 weeks 6 days 22 hours ago) and read 22881 times:

Quoting prebennorholm (Reply 8):
To me this seems rather silly. But then my view may be colored by the fact that I have spent all my professional career in the oil business.

Yep, I don't get it either. They have no experience in operating a completely different industry.

185,000 barrel a day facility will generate what 750-800,000 gallons per day of Jet A? What are they going to do with the other 7 million gallons of products? How are they going to sell and distribute it? Seems they are looking at buying a small scale operation to get 10% of their products which will serve around 25% of their average daily fuel needs? A good opportunity to suck management time out of what they do best...running an airline.


User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9700 posts, RR: 15
Reply 11, posted (2 years 8 months 3 weeks 6 days 22 hours ago) and read 22863 times:

Quoting BD338 (Reply 10):
What are they going to do with the other 7 million gallons of products?

did you read the link? They will have to sign some kind of product to sell of the heating oil/gas that isn't used.



yep.
User currently offlineMountainFlyer From United States of America, joined Jul 2005, 477 posts, RR: 0
Reply 12, posted (2 years 8 months 3 weeks 6 days 22 hours ago) and read 22711 times:

Quoting doug_Or (Reply 7):
I can't imagine Delta will actually use the products refined at this facility, at least not in larger quantities than any other airline. The idea would presumably to act as a hedge- when Jet A prices were high the refineries profits would offset higher fuel costs at DL, increasing financial stability.

   IMHO, this would be nothing more than a hedging tool. Any savings DL might generate by owning their own refinery would be lost in the cost of transportation and distribution to even just their primary usage points (primarily the big hubs) if they used exclusively fuel from their owned refinery.



SA-227; B1900; Q200; Q400; CRJ-2,7,9; 717; 727-2; 737-3,4,5,7,8,9; 747-2; 757-2,3; 767-3,4; MD-90; A319, 320; DC-9; DC-1
User currently offlineBD338 From United States of America, joined Jul 2010, 740 posts, RR: 0
Reply 13, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22567 times:

Quoting DeltaL1011man (Reply 11):
did you read the link? They will have to sign some kind of product to sell of the heating oil/gas that isn't used.

yep, read it. Question remains, what are they going to do with it? Yes, they have to sign an agreement but how for such a small scale output? If a large oil company couldn't make the refinery pay, how is an airline only interested in 10% of the product going to make it work.


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 14, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22443 times:

Quoting catiii (Reply 5):

I think it was called Epsilon, right?

You could be right.......I'm not sure if I ever did know the name, just that DL did own one.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinesimairlinenet From United States of America, joined Oct 2005, 922 posts, RR: 2
Reply 15, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22367 times:

Quoting N62NA (Reply 9):
Didn't VS announce a few years ago they would produce their own bio-fuels plant to become "fuel independent?"

Someone is on the right track here...

Quoting catiii (Reply 5):
I think it was called Epsilon, right?

Epsilon Trading is still a subsidiary of Delta.


User currently offlineAAIL86 From Finland, joined Feb 2011, 428 posts, RR: 3
Reply 16, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22334 times:

Could be a very good idea if the price is right. I've personally always wondered why more airlines don't use more vertical integration to control costs. Delta could be on to something here...


Next
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 17, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22296 times:

Quoting prebennorholm (Reply 8):

This is why I raised the question. Refineries have been shutting down left and right. The largest (maybe second largest) oil refinery in the western hemisphere located on St. Croix, US Virgin Islands not too long ago announced plans to shut down that plant. From what i've been told, it's a money loosing business especially with many of the sites being ran off of old technology and using fuel to run the operation when newer sites are using other forms of energy.



What gets measured gets done.
User currently offlineslcdeltarumd11 From United States of America, joined Jan 2004, 3640 posts, RR: 0
Reply 18, posted (2 years 8 months 3 weeks 6 days 21 hours ago) and read 22268 times:

Where is this refinery located?

User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 19, posted (2 years 8 months 3 weeks 6 days 20 hours ago) and read 22090 times:

Quoting slcdeltarumd11 (Reply 18):
Where is this refinery located?

I believe the article said Philadelphia.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineFlyboy1108 From United States of America, joined Jan 2007, 94 posts, RR: 0
Reply 20, posted (2 years 8 months 3 weeks 6 days 18 hours ago) and read 21865 times:

Quoting slcdeltarumd11 (Reply 18):
Where is this refinery located?
Quoting mayor (Reply 19):
I believe the article said Philadelphia.

Yea its on the Delaware river about 10 miles south of PHL. Sunoco also just shut down their refinery in Marcus Hook, and they're trying to close their Philadelphia refinery this summer. The reason from what I understand is that most refineries in the Northeast US tend to refine Brent shipped over from the North Sea, and that averages $10-$15 more a barrel than WTI does, and fuel prices don't reflect this. I admit I'm quite intrigued by this, and given that DL has several "wholly owned" divisions that have little or nothing to do with aviation, if anyone can figure this out and succeed it's them. If it proves to be successful, with all the closed/closing refineries here and other places across the US there's plenty of opportunity for other airlines to take a shot.



"God is great, beer is good, and people are crazy"
User currently offlineSSTeve From United States of America, joined Dec 2011, 738 posts, RR: 2
Reply 21, posted (2 years 8 months 3 weeks 6 days 18 hours ago) and read 21771 times:

I thought the refining business had worse margins than airlines. The idea that Delta needs a refinery to save on gas is like Exxon announcing that they're buying Pinnacle (yeah, small and unprofitable) to save on their corporate travel. Just doesn't make sense.

So Delta's not going to be using the fuel directly. I too think it could be a hedge play of some sort, but how will that work, exactly?


User currently offlineNUAir From Malaysia, joined Jun 2000, 1181 posts, RR: 0
Reply 22, posted (2 years 8 months 3 weeks 6 days 17 hours ago) and read 21716 times:

This sounds like a disaster.

Trainer is losing money and the economics of the refinery don't work. If they did another oil company would have snatched it up years ago when Conoco first tried to offload it.

It's extremely short sighted to make a huge multi-billion dollar investment on an oil production facility because crack spreads today are high. It's an extremely cyclical market and for every period of high spreads you have an equal (or greater) period of low spreads. Not to mention there is no pipeline that runs south from Philly to Atlanta and any jet supply transportation costs for Delta (via barge or rail) are going to far outweigh the cost for them to acquire product coming up from Texas and Louisiana. At best Delta will be trading most of the product to the Northeast market at a substantial loss.

You can't convert a refinery to produce 100% jet fuel and Trainer is configured for maximum gasoline production (over 58%), they are going to have to figure out what to do with millions of gallons of gasoline in a market that is being flooded by cheaper gasoline from European refineries from a continent that is increasingly moving to diesel, not to mention the fuel oil that is sold at a substantial loss to crude.

The only hope for this refinery is a multi-billion dollar expansion and addition of a large coker but Conoco dropped the idea due to the high investment costs and lack of available land around the refinery for the required units and storage.

If Delta wants a refinery buy one that has max distillate production and actually makes money in the gulf coast. Gulf Coast refineries are almost all linked up to pipelines that supply Atlanta, Minneapolis, Memphis, Cincinnati, Detroit and even NY...where Delta would actually need the product.



"How Many Assholes we got on this ship?" - Lord Helmet
User currently offlineORDJOE From United States of America, joined Aug 2010, 752 posts, RR: 0
Reply 23, posted (2 years 8 months 3 weeks 6 days 13 hours ago) and read 20812 times:

This seems like a bad idea for several reasons, first off refining is not that profitable for oil companies, exploration is where it is at. Second this refinery will have to buy crude from someone. Lastly they will either have to start a JV or pay a huge mgmt fee for this to be run, trust me there is no one at DL that can run this. That partnership would erode profits.


Them being in the pipeline business was a better idea, pipelines are hugely profitable.


User currently offlinenomadd22 From United States of America, joined Feb 2008, 1903 posts, RR: 0
Reply 24, posted (2 years 8 months 3 weeks 6 days 12 hours ago) and read 20559 times:

It's not a good idea for keeping prices stable. Just the opposite, in fact. Oil companies can stay profitable during price swings by making money downstream one day and upstream the next. Make it in crude production when oil prices are high and refining when they're low. Only being on the refining end kills that balance. The world is full of refineries that lose money.


Andy Goetsch
User currently offlineenilria From Canada, joined Feb 2008, 7720 posts, RR: 15
Reply 25, posted (2 years 8 months 3 weeks 6 days 11 hours ago) and read 20225 times:

Quoting ORDJOE (Reply 23):
This seems like a bad idea for several reasons, first off refining is not that profitable for oil companies, exploration is where it is at.

As I posted earlier, the crack spread for jet fuel has grown considerably from historical levels. That's really the issue. It would appear that due to lack of competition, the refining of JET A has become quite profitable.


User currently offlineNUAir From Malaysia, joined Jun 2000, 1181 posts, RR: 0
Reply 26, posted (2 years 8 months 3 weeks 6 days 11 hours ago) and read 20077 times:

Quoting enilria (Reply 25):
As I posted earlier, the crack spread for jet fuel has grown considerably from historical levels. That's really the issue. It would appear that due to lack of competition, the refining of JET A has become quite profitable.

This should be a clear warning to Delta that even when crack spreads are at historic highs this refinery would still barely operating at break-even (the refinery has been shut down since September). As soon as spreads start to fall it will continue to be a money loser...which is exactly why most of the refineries in the Northeast are shutting down.

It has been and always will be a cyclical industry. Just because crack spreads are high today due to good margins on distillates it means nothing for margins tomorrow. With large refinery complexes coming online in South Asia, China and the Middle East a lot of distillate is going to be coming into the European market in the near future. As that happens the crack spreads will start to erode in the Atlantic and again small non-complex refineries in the US northeast are going to be very badly positioned...which is why most of them are in the process of shutting down.

Buying refinery assets at the peak of a crack spread bubble is never a good idea...just ask Tesoro.

[Edited 2012-04-04 06:38:02]


"How Many Assholes we got on this ship?" - Lord Helmet
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 27, posted (2 years 8 months 3 weeks 6 days 9 hours ago) and read 19164 times:

Quoting NUAir (Reply 22):
The only hope for this refinery is a multi-billion dollar expansion and addition of a large coker but Conoco dropped the idea due to the high investment costs and lack of available land around the refinery for the required units and storage.

That was the #1 reason why HOVENSA shut down in STX. The plant would have required a coker unti to reman viable going forward. Neither HESS nor the Colombians were wlling to spnd the money to do it.



What gets measured gets done.
User currently offlineORDJOE From United States of America, joined Aug 2010, 752 posts, RR: 0
Reply 28, posted (2 years 8 months 3 weeks 6 days 9 hours ago) and read 19013 times:

Quoting enilria (Reply 25):
As I posted earlier, the crack spread for jet fuel has grown considerably from historical levels. That's really the issue. It would appear that due to lack of competition, the refining of JET A has become quite profitable.

Having actually worked at a refinery I will agree with the spreads, but if all you want is the JET A, then those spreads will seem cheap compared to running a refinery, people actually in the oil business would crush this operation. The only way that this could be pulled off is setting up some sort of JV, and by the end of the day DL still would not be making or saving all that much.

Trust me oil refineries are a money losing operation, they are there to give a reason to go exploring and drilling, that is where the money is (and pipelining)


User currently offlinebobnwa From United States of America, joined Dec 2000, 6538 posts, RR: 9
Reply 29, posted (2 years 8 months 3 weeks 6 days 8 hours ago) and read 18227 times:

Quoting NUAir (Reply 22):
t's extremely short sighted to make a huge multi-billion dollar investment on an oil production facility because crack spreads today are high. It




Where are getting"multi billions from?


User currently onlinestlgph From United States of America, joined Oct 2004, 9518 posts, RR: 26
Reply 30, posted (2 years 8 months 3 weeks 6 days 8 hours ago) and read 18022 times:

Quoting FlyASAGuy2005 (Thread starter):
The MRO company their going into with Aero Mexico, etc. etc. but an oil refinery?

this has actually been in the works for a few years.



if assumptions could fly, airliners.net would be the world's busiest airport
User currently offlineNUAir From Malaysia, joined Jun 2000, 1181 posts, RR: 0
Reply 31, posted (2 years 8 months 3 weeks 6 days 6 hours ago) and read 17252 times:

Quoting bobnwa (Reply 29):
Where are getting"multi billions from?

- purchase price = maybe $400 million?
- restart costs (since its currently shut down) = $1-2 million
- adding upgrading capacity and reconfiguring for distillate production = $800-$1,200 million
- 300,000+ barrels of crude to get things started = $37 million +

They could skip step three but then they would probably be better off just throwing money into a furnace to generate electricity.

[Edited 2012-04-04 10:43:05]


"How Many Assholes we got on this ship?" - Lord Helmet
User currently offlinelitz From United States of America, joined Dec 2003, 1788 posts, RR: 0
Reply 32, posted (2 years 8 months 3 weeks 6 days 5 hours ago) and read 16341 times:
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Quoting doug_Or (Reply 7):
I can't imagine Delta will actually use the products refined at this facility, at least not in larger quantities than any other airline. The idea would presumably to act as a hedge- when Jet A prices were high the refineries profits would offset higher fuel costs at DL, increasing financial stability.

Whether they use the actual product from the refinery really doesn't matter ...

Any Jet-A they produce is used as a commodity exchange for Jet-A wherever they DO need it ...

e.g., they need 75,000 gallons of Jet-A delivered to Hartsfield ... some oil company (e.g., BP, Shell, whomever) delivers it in ATL, and takes an equivalent amount from the refinery output as collateral.

As for the "other products", it said quite clearly that they'd have to find an outlet for it, probably directly into the international commodities market.

To them, any sale of that stuff is just gravy to help offset production costs of the jet fuel.


User currently onlineprebennorholm From Denmark, joined Mar 2000, 6545 posts, RR: 54
Reply 33, posted (2 years 8 months 3 weeks 5 days 23 hours ago) and read 14808 times:

Quoting enilria (Reply 25):
It would appear that due to lack of competition, the refining of JET A has become quite profitable.

You don't refine Jet A.

You refine crude oil, and then you get anywhere from zero to 15% Jet A depending on crude oil type and refinery configuration. In addition you get 85-100% gasoline, LPG, diesel oil, marine diesel fuel, heavy fuel oil, bitumen etc. And you'd better have one hell of an experience in duing that right, or you end up with most products outside 2012 quality specs. Maintaning that know how with one refinery only, is impossible. Running it in a JV, where you contribute nothing but the investment, that will be an enormous economic hole in the ground.

Your comment about competition is 180 degrees wrong. The very stiff competition is the only reason for refineries being shut down for scrapping or offered for sale.



Always keep your number of landings equal to your number of take-offs, Preben Norholm
User currently offlinePIEAvantiP180 From United States of America, joined Sep 2009, 558 posts, RR: 0
Reply 34, posted (2 years 8 months 3 weeks 5 days 13 hours ago) and read 14235 times:

Don't know how accurate the report was that I watched last night but they were saying that they could possibly save .05$ per gallon of jet a. DL paid about 12.2 billion for fuel last year. That would equate to about 200-220 million in yearly fuel savings. I'm not sure if that's enough savings to invest that kind of money in a refinery. Unless they plan to make the rest of their money in selling other oil products coming out of the refining process.

User currently offlineKarlB737 From United States of America, joined Mar 2004, 3145 posts, RR: 10
Reply 35, posted (2 years 8 months 3 weeks 5 days 9 hours ago) and read 14018 times:

A video report from CNBC on the subject:

Courtesy: CNBC

Delta Eyeing ConocoPhillips Refinery for More than $100 Million

http://video.cnbc.com/gallery/?video...oo|headline|quote|video|&par=yahoo


User currently offlineenilria From Canada, joined Feb 2008, 7720 posts, RR: 15
Reply 36, posted (2 years 8 months 3 weeks 5 days 8 hours ago) and read 13996 times:

Quoting NUAir (Reply 26):
As soon as spreads start to fall it will continue to be a money loser...which is exactly why most of the refineries in the Northeast are shutting down.
Quoting prebennorholm (Reply 33):
Your comment about competition is 180 degrees wrong. The very stiff competition is the only reason for refineries being shut down for scrapping or offered for sale.
Quoting ORDJOE (Reply 28):
Trust me oil refineries are a money losing operation, they are there to give a reason to go exploring and drilling, that is where the money is (and pipelining)

Actually you are all wrong. The reason why East Coast refineries have shut down is because of the price difference between WTI and Brent. The East refineries are fed from North Sea Brent which is about 20% higher than WTI. Thus, fuel refined at those refineries is uncompetitive with Midwest fuel. Thus, the refineries have shut.

Quoting NUAir (Reply 26):
Buying refinery assets at the peak of a crack spread bubble is never a good idea...just ask Tesoro.

The issue for JET A from what I have read is that WTI is too coarse for efficient production of JET A. The reason why the JET A crack spread has gotten higher and higher is because these East Coast refineries are shutting down because of the oil price imbalance driven by gasoline which is the core product and the Midwest supply stream from WTI is not producing sufficient quantities of JET A thus driving the crack spread higher.

Increased production of North Dakota oil is expected to worse the problem as Midwest oil will get even cheaper vs. Brent.

Quoting prebennorholm (Reply 33):
Quoting enilria (Reply 25):
It would appear that due to lack of competition, the refining of JET A has become quite profitable.

You don't refine Jet A.

You are splitting hairs. OK, the refining that results in JET A.


User currently offlineaviationbuff08 From United States of America, joined Feb 2008, 346 posts, RR: 0
Reply 37, posted (2 years 8 months 3 weeks 5 days 6 hours ago) and read 13701 times:

Quoting PIEAvantiP180 (Reply 34):
Don't know how accurate the report was that I watched last night but they were saying that they could possibly save .05$ per gallon of jet a. DL paid about 12.2 billion for fuel last year. That would equate to about 200-220 million in yearly fuel savings. I'm not sure if that's enough savings to invest that kind of money in a refinery. Unless they plan to make the rest of their money in selling other oil products coming out of the refining process.

This is certainly an interesting idea, but would just one refinery provide sufficient cost savings or would they need 3-6 of them. Could they possible sent the Jet A and diesel and gas to LGA/JFK hub operations? I know Jet A is the primary interest but there is lots of ground equipment that uses diesel and gas at both airports.


User currently offlinespeedbird9 From United Kingdom, joined Jan 2008, 231 posts, RR: 0
Reply 38, posted (2 years 8 months 3 weeks 5 days 5 hours ago) and read 13610 times:

just found this interesting video on Reuters:

http://uk.reuters.com/video/2012/04/...eoId=232941736&videoChannel=117789

barmy or stroke of genius?

my opinion barmy

[Edited 2012-04-05 12:13:48]


Is the customer always right? Michael O'Leary: no the customer is nearly always wrong
User currently offlineburnsie28 From United States of America, joined Aug 2004, 7566 posts, RR: 8
Reply 39, posted (2 years 8 months 3 weeks 5 days 5 hours ago) and read 13580 times:

Quoting BD338 (Reply 10):
185,000 barrel a day facility will generate what 750-800,000 gallons per day of Jet A? What are they going to do with the other 7 million gallons of products? How are they going to sell and distribute it? Seems they are looking at buying a small scale operation to get 10% of their products which will serve around 25% of their average daily fuel needs? A good opportunity to suck management time out of what they do best...running an airline.

Just because you own something doesn't mean that your overall holding company executive management is running it.



"Some People Just Know How To Fly"- Best slogan ever, RIP NW 1926-2009
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 40, posted (2 years 8 months 3 weeks 5 days 3 hours ago) and read 13486 times:

Quoting burnsie28 (Reply 39):
Just because you own something doesn't mean that your overall holding company executive management is running it.



  

get the right people in to run the subsidiary with Delta Air Lines, Inc. owning the site.



What gets measured gets done.
User currently offlineglbltrvlr From United States of America, joined Oct 2007, 770 posts, RR: 0
Reply 41, posted (2 years 8 months 3 weeks 5 days 1 hour ago) and read 13354 times:

Quoting MountainFlyer (Reply 12):
Any savings DL might generate by owning their own refinery would be lost in the cost of transportation and distribution to even just their primary usage points (primarily the big hubs) if they used exclusively fuel from their owned refinery.

It's worse than that. The crack spread covers the cost of operating the refinery as well as operating profits. If Delta gives themselves a discount on Jet-A from their own refinery, the refinery's margins go down and they own an unprofitable business. If they sell to themselves at market (which I think they are required to do, at least on the books), what have they bought themselves other than a headache?

With the emphasis on getting rid of non-core operations, Wall Street will kill them if this is anything more than someone talking out of the side of their mouth.


User currently onlineprebennorholm From Denmark, joined Mar 2000, 6545 posts, RR: 54
Reply 42, posted (2 years 8 months 3 weeks 4 days 22 hours ago) and read 13147 times:

Quoting enilria (Reply 36):
The East refineries are fed from North Sea Brent which is about 20% higher than WTI. Thus, fuel refined at those refineries is uncompetitive with Midwest fuel.

Wrong. The price variations on Brent and WTI (West Texas Intermediate) totally mirrors the composition of the crude. You get that more high value fuels out of Brent compared to WTI.

In fact such things as Brent or WTI crude oil hardly exist in reality. Every oil well has a unique crude composition.

Brent and WTI are just two different market defined crude compositions used as technical guidelines for adding or subtracting some percentage to prices depending on actual oil field and its crude quality. For crude from other parts of the world other such technical pricing guidelines are used, such as the "OPEC Reference Basket" or "Dubai Crude".

However, during the later years the Brent benchmark is being used a lot more widespread for international trade, also for trading crude oil which has never seen the North Sea or Europe. It has become the world's by far mostly used benchmark for pricing crude oil whether it actually comes from the North Sea, Russia, Middle East or elsewhere.

The Brent pricing formula was defined almost fifty years ago by Shell as a certain blend of crude from fifteen different oil fields in or around the North Sea.

Shell has a habit of naming their oil fields with bird's names. Brent is a small, migrating goose which is breeding in northern Russia and Siberia, while wintering mostly on southern coastlines of Britain and Ireland. Its Latin name is Branta Bernicla.



Always keep your number of landings equal to your number of take-offs, Preben Norholm
User currently offlineMasseyBrown From United States of America, joined Dec 2002, 5604 posts, RR: 7
Reply 43, posted (2 years 8 months 3 weeks 4 days 21 hours ago) and read 13016 times:

AA bought some wells during the 1970's Carter-era fuel crisis. I believe they sold them at a loss in the 80's. It seemed like a good idea at the time.


I love long German words like 'Freundschaftsbezeigungen'.
User currently offlineIADCA From United States of America, joined Feb 2007, 1377 posts, RR: 8
Reply 44, posted (2 years 8 months 3 weeks 4 days 20 hours ago) and read 12988 times:

Quoting prebennorholm (Reply 42):
In fact such things as Brent or WTI crude oil hardly exist in reality. Every oil well has a unique crude composition.

And an increasing percentage of the active fields produce stuff that the East Coast refineries can't handle. The ones that have been upgraded recently have taken a lot of work to be able to handle heavier, more sour grades. That oil (e.g., Angolan production) is cheaper on the market than the good stuff, but it's useless if you can't handle it. A good deal of the price difference between such oil and Brent or WTI is specifically because most older refineries - like those on the East Coast - simply can't do much with it, whereas newer facilities can handle many more grades.


User currently offlineKarlB737 From United States of America, joined Mar 2004, 3145 posts, RR: 10
Reply 45, posted (2 years 8 months 2 weeks 5 days 8 hours ago) and read 12405 times:

Courtesy: Bloomberg News

Delta Said To Seek 10% Fuel Savings With ConocoPhillips Refinery

"Delta uses about 3.9 billion gallons of jet fuel a year, which translates to about 254,000 barrels a day. A 1-cent a gallon price increase equals $40 million more in costs on an annualized basis. Jet fuel for immediate delivery in New York Harbor has averaged $3.12 a gallon in the past 12 months before today. Five years ago from yesterday, the trailing 12-month average was $1.94."

http://www.bloomberg.com/news/2012-0...ophillips-refinery.html?cmpid=yhoo


User currently offlinelitz From United States of America, joined Dec 2003, 1788 posts, RR: 0
Reply 46, posted (2 years 8 months 2 weeks 5 days 7 hours ago) and read 12278 times:
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10% is no laughing matter ... if that pans out, the economics of this kind of deal are obvious.

If this works out, could be a trendsetter.


User currently offlineNUAir From Malaysia, joined Jun 2000, 1181 posts, RR: 0
Reply 47, posted (2 years 8 months 2 weeks 5 days 7 hours ago) and read 12263 times:

Quoting litz (Reply 46):
the economics of this kind of deal are obvious.

So Delta Airlines saves 10% on jet fuel costs but Delta refining loses 10% on jet fuel sales to Delta Airlines compared to what they could have sold to the market.

I would love to know where Delta will come up with the money to upgrade this refinery to meet environmental and safety regulations not to mention meeting future fuel specification standards...types of things Delta will get to deal with in the future...

"OSHA cited ConocoPhillips’s Trainer, Pa., refinery for 27 violations that the agency said could lead to serious injury and possible death, reported The Delaware County Daily Times.
OSHA issued 26 serious violations with penalties totaling $91,500 and one repeat violation, carrying a $25,000 penalty, for a total of $116,500 in penal- ties."

"The Trainer facility had to pay $129,524 in penalties to the Department of Environmental Protection last December for air-quality violations. One of these violations was a hydrocarbon emission Feb. 10, 2007 that forced the voluntary evacuation of area residents.
The DEP said ConocoPhillips incor- rectly reported emissions of sulfur oxides in 2002 and 2004. In 2006, DEP noted excess emissions of sulfur dioxide, hydrogen sulfide, isobutene and propane, as well as minor tank violations at the Trainer facility."



"How Many Assholes we got on this ship?" - Lord Helmet
User currently offlineGSPSPOT From United States of America, joined Sep 2003, 3108 posts, RR: 2
Reply 48, posted (2 years 8 months 2 weeks 5 days 6 hours ago) and read 12167 times:

Can you say, "vertical integration"? (Econ 101) If you have enough $$ on hand, you can do things like that I suppose. I say it's a smart move, and more power to them! Surprised WN hasn't come up with a similar scheme already, seeing that they're based in Texas & all...


Finally made it to an airline mecca!
User currently offlineNUAir From Malaysia, joined Jun 2000, 1181 posts, RR: 0
Reply 49, posted (2 years 8 months 2 weeks 5 days 6 hours ago) and read 12120 times:

Quoting GSPSPOT (Reply 49):
Can you say, "vertical integration"? (Econ 101) If you have enough $$ on hand, you can do things like that I suppose. I say it's a smart move, and more power to them!

Vertical integration has worked so well for the oil companies that the majors have sold off 60% of their refining assets due to low returns?

I guess you don't learn about economies of scale and scope until Econ 102.

Quoting mayor (Reply 48):
THE JET FUEL THAT RESULTED WOULD BE SOLD BACK TO DELTA AT EFFECTIVELY FULL SALE PRICES AND THE OTHER PRODUCTS THAT COME OUT OF THIS PARTICULAR PLANT WHICH INCLUDE KEROSENE, DIESEL AND A FEW OTHER THINGS, COULD BE SOLD NEW NEW: Thomsonfly (United Kingdom)">BY JPMORGAN ON THE OPEN MARKET.

Someone explain to me how Delta taking all the risk by buying the facility and plunking down a few hundred million for the refinery and upgrades and letting JP Morgan capture all the "profits" is a good thing for Delta? Delta gets to trade diesel and gasoline for jet fuel from the oil companies at market rates?

If anyone thinks Delta is smarter than JP Morgan and the oil companies and will actually come out on top on this deal you should probably get your head checked.



"How Many Assholes we got on this ship?" - Lord Helmet
User currently offlineMountainFlyer From United States of America, joined Jul 2005, 477 posts, RR: 0
Reply 50, posted (2 years 8 months 2 weeks 5 days 2 hours ago) and read 11938 times:

Quoting glbltrvlr (Reply 41):
If Delta gives themselves a discount on Jet-A from their own refinery, the refinery's margins go down and they own an unprofitable business.

So what? They get Jet A at lower rates (in theory), and they get a tax write-off besides. Win-win...in theory.  



SA-227; B1900; Q200; Q400; CRJ-2,7,9; 717; 727-2; 737-3,4,5,7,8,9; 747-2; 757-2,3; 767-3,4; MD-90; A319, 320; DC-9; DC-1
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 51, posted (2 years 8 months 2 weeks 4 days 19 hours ago) and read 11697 times:

Ok......I messed up on the earlier article.....this one is from Fortune Magazine................



April 12, 2012: 9:04 AM ET
Delta is hoping to beat Wall Street at its own game by getting into the jet fuel trading business. If successful, one bank stands to lose the most.

By Cyrus Sanati, contributor



FORTUNE -- Delta Air Lines is upping the ante in its war with Wall Street over jet fuel prices. The airline is hiring away oil traders from the Street and is now angling to buy a refinery on the east coast in an effort to cut costs and bypass speculators. If successful, Delta could encourage other airlines to follow suit, delivering a blow to the trading floors at some of the big banks.


http://finance.fortune.cnn.com/2012/...delta-oil-refinery/?iid=SF_F_River




And here is the link to the video of the article I posted earlier......apparently, what I posted was a transcript of the video and not a very good one, at that.


http://video.cnbc.com/gallery/?video=3000083629&play=1



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 52, posted (2 years 8 months 2 weeks 4 days 18 hours ago) and read 11821 times:

Quoting prebennorholm (Reply 42):
Wrong. The price variations on Brent and WTI (West Texas Intermediate) totally mirrors the composition of the crude. You get that more high value fuels out of Brent compared to WTI.

This simply is not true. WTI trades at a discount to Brent because of congestion in the Cushing, Oklahoma trading and storage hub. Cushing is the price settlement point for WTI on the NYMEX, and therefore oversupply of (Albertan, North Dakotan, Oklahoman, Texan, Louisianan, and imported) oil into this hub has depressed prices. Ramping up of Alberta's oil exports, increased ND production, and declining US demand for oil products have magnified this effect.

In actuality WTI is a bit lighter and sweeter (and therefore more desirable by traditional refineries), and it traded at a ≈$1 premium to Brent for many years. Really though, they are both very similar oils, especially energy content wise.

Quoting prebennorholm (Reply 42):
In fact such things as Brent or WTI crude oil hardly exist in reality. Every oil well has a unique crude composition.

Brent and WTI are just two different market defined crude compositions used as technical guidelines for adding or subtracting some percentage to prices depending on actual oil field and its crude quality.

Right, Brent and WTI are both 'blends' from various oil fields.

Brent:
API ≈38.3º
≈0.37% Sulfur

WTI:
API ≈39.6º
≈0.24% Sulfur
Quoting prebennorholm (Reply 42):

However, during the later years the Brent benchmark is being used a lot more widespread for international trade, also for trading crude oil which has never seen the North Sea or Europe. It has become the world's by far mostly used benchmark for pricing crude oil whether it actually comes from the North Sea, Russia, Middle East or elsewhere.

Yes most of the world's oil is priced closer to Brent than WTI. This is just because of circumstance.

Something to note is that not all US domestically produced oil is priced relative to WTI. There are many grades, such as, Light Louisiana Sweet (LLS), Heavy Louisiana Sweet (HLS), West Texas Sour, Wyoming Sweet, Alaska North Slope, Eugene Island, Bonito, Mars, Thunder Horse, Thums, Kern River, Bakken Blend, etc.

All these oils are priced differently.

LLS is the assessment assigned to oil delivered to St. James, Louisiana within specification. LLS is priced very close to Brent.

Many imports to Gulf and Atlantic terminals and refineries are oils like: Arabian Light, Arabian Medium, Arabian Berri, Venezuelan Merey, Nigerian Bonny Light, Algerian Sahara Blend, Iraqi Basrah Light, Mexican Mayan... Many of these oils are priced much closer to Brent than WTI.



oh boy!!!
User currently offlinePHLJJS From United States of America, joined Oct 2005, 418 posts, RR: 0
Reply 53, posted (2 years 8 months 2 weeks 10 hours ago) and read 11430 times:

According to Philly.com and CNBC, Delta's board has approved the purchase of the oil refinery at a cost of up to $125 million.

http://www.philly.com/philly/blogs/p...-deal-to-buy-Trainer-refinery.html


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 54, posted (2 years 8 months 2 weeks 8 hours ago) and read 11269 times:

Quoting PHLJJS (Reply 53):

I'm still scratching my head with this one. I truly do not unerstand what they expect to get out of this (seems obvious yes but as i've said before, these refineries have been sutting down left and right for a reason; incuding HOVENSA which was once the largest on this side of the earth).



What gets measured gets done.
User currently offlineGSPSPOT From United States of America, joined Sep 2003, 3108 posts, RR: 2
Reply 55, posted (2 years 8 months 2 weeks 7 hours ago) and read 11213 times:

Quoting PHLJJS (Reply 53):
According to Philly.com and CNBC, Delta's board has approved the purchase of the oil refinery at a cost of up to $125 million.

http://www.philly.com/philly/blogs/p....html

Should be interesting to watch....   



Finally made it to an airline mecca!
User currently offlineTSS From United States of America, joined Dec 2006, 3070 posts, RR: 5
Reply 56, posted (2 years 8 months 2 weeks 6 hours ago) and read 11128 times:

Quoting FlyASAGuy2005 (Reply 54):
I'm still scratching my head with this one. I truly do not unerstand what they expect to get out of this (seems obvious yes but as i've said before, these refineries have been sutting down left and right for a reason; incuding HOVENSA which was once the largest on this side of the earth).

Same here. The only possibility I can think of, and I expect this idea to be shot full of holes in subsequent posts, is that Delta is considering experimenting with or brewing up their own biofuel. Beyond that admittedly remote possibility, I can't think of a good reason to buy a refinery currently in need of serious upgrades.



Able to kill active threads stone dead with a single post!
User currently offlineSSTeve From United States of America, joined Dec 2011, 738 posts, RR: 2
Reply 57, posted (2 years 8 months 2 weeks 6 hours ago) and read 11123 times:

It's being purchased by an investment arm who's ideal is probably creative fuel price hedging. Perhaps they already have someone in mind to run it. Basically a purchase, lease-back. Will be interesting to see who ends up running the place.

User currently offlinepanamair From United States of America, joined Oct 2001, 4977 posts, RR: 25
Reply 58, posted (2 years 8 months 2 weeks 2 hours ago) and read 10998 times:
Support Airliners.net - become a First Class Member!

Quoting FlyASAGuy2005 (Reply 54):
I'm still scratching my head with this one. I truly do not unerstand what they expect to get out of this (seems obvious yes but as i've said before, these refineries have been sutting down left and right for a reason; incuding HOVENSA which was once the largest on this side of the earth).
Quoting TSS (Reply 56):
Same here. The only possibility I can think of, and I expect this idea to be shot full of holes in subsequent posts, is that Delta is considering experimenting with or brewing up their own biofuel. Beyond that admittedly remote possibility, I can't think of a good reason to buy a refinery currently in need of serious upgrades.

Based on various recent articles, the Cliff Notes version appears to be:

- Delta will buy the refinery and get it refurbed
- JP Morgan will finance the entire oil procurement and refining process - from purchasing the oil from Nigeria, shipping it to Pennsylvania, refining the oil into jet fuel and other products
- JP Morgan will sell the jet fuel to Delta at wholesale
- Other fuel products could be sold to Conoco and/or other oil companies, who in turn could further provide Delta with additional jet fuel for those products....


User currently offlinepeanuts From Netherlands, joined Dec 2009, 1445 posts, RR: 4
Reply 59, posted (2 years 8 months 1 day 7 hours ago) and read 10642 times:

"Analysis: Delta's refinery bid looks better on second glance"

http://www.reuters.com/article/2012/...lta-refinery-idUSBRE83T02O20120430

"Key to the venture's success would be tempering feedstock costs"

Interesting read. Obviously, there are some risks.

[Edited 2012-04-30 10:21:58]


Question Conventional Wisdom. While not all commonly held beliefs are wrong…all should be questioned.
User currently onlinedeltaffindfw From United States of America, joined Sep 2003, 1449 posts, RR: 0
Reply 60, posted (2 years 8 months 1 day 4 hours ago) and read 10521 times:

CNBC is reporting: Delta Air Lines to Purchase ConocoPhilips Refinery in Trainer, PA, for $180 Million (story developing)

EDIT: Story below:

ATLANTA, April 30, 2012 /PRNewswire/ -- Delta Air Lines (DAL) wholly-owned subsidiary, Monroe Energy LLC, has reached agreement with Phillips 66 (NYSE: PSX-WI) to acquire the Trainer refinery complex south of Philadelphia. As part of the transaction, Monroe will enter into strategic sourcing and marketing agreements with BP (NYSE: BP) and Phillips 66. The acquisition includes pipelines and transportation assets that will provide access to the delivery network for jet fuel reaching Delta's operations throughout the Northeast, including its hubs at LaGuardia and JFK.

http://finance.yahoo.com/news/delta-...re-trainer-refinery-200000292.html

[Edited 2012-04-30 13:07:38]

User currently offlineCoronado From United States of America, joined Jun 1999, 1213 posts, RR: 2
Reply 61, posted (2 years 8 months 1 day 4 hours ago) and read 10467 times:
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Most telling comment from Delta is that they expect to recoup their investment in the first year! That is pretty impressive.
Even if they only achieve 25% of that, it results in a payback of 4 years.



The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
User currently offlinespeedbird9 From United Kingdom, joined Jan 2008, 231 posts, RR: 0
Reply 62, posted (2 years 8 months 1 day 3 hours ago) and read 10423 times:

Quote:
Delta Air Lines Inc will buy a Pennsylvania oil refinery from ConocoPhillips for $150 million, the first time an airline has bought a refinery, highlighting the industry's desparate attempt to save money on fuel costs.

Delta said on Monday the refinery would be run by a leadership team headed by Jeffrey Warmann, who last ran Murphy Oil USA's Meraux, Louisiano refinery. The bid to buy the plant has puzzled analysts who wondered how an airline could succeed at running a refinery that has lost money for experienced energy companies.

Delta said its Monroe Energy LLC unit expects to close the purchase in the first half. Under a three-year agreement as part of the deal, oil major BP will supply crude oil to the plant, while BP and former owners Phillips 66 will get a share of the gasoline, diesel and refined fuel to sell.
http://uk.reuters.com/article/2012/04/30/delta-idUKL1E8FUE4O20120430



Is the customer always right? Michael O'Leary: no the customer is nearly always wrong
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 63, posted (2 years 8 months 1 day 3 hours ago) and read 10448 times:

Indeed..just read the internal memo. They say once everything is up and running, the site will be able to supply about 80% of Delta's daily Jet-A needs. Expect to save close to $300M in its first full 12 months and that's at today's oil prices (mind you DL has been going off of brent for quite some time now) so ny down trend will only be icing on the cake. So yes, seems like a very good investment as they will get their money back two-fold in just one year.


What gets measured gets done.
User currently offlineburnsie28 From United States of America, joined Aug 2004, 7566 posts, RR: 8
Reply 64, posted (2 years 8 months 1 day 3 hours ago) and read 10318 times:

Quoting FlyASAGuy2005 (Reply 63):
They say once everything is up and running, the site will be able to supply about 80% of Delta's daily Jet-A needs.

Actually it will only directly supply operations in the Northeast, but the trade off from by-products would then supply the 80%.



"Some People Just Know How To Fly"- Best slogan ever, RIP NW 1926-2009
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 65, posted (2 years 8 months 1 day 3 hours ago) and read 10282 times:

Quoting burnsie28 (Reply 64):

Just went back and re-read it..you're right! It may have been how RA worded the memo that confused me.



What gets measured gets done.
User currently offlinecokepopper From United States of America, joined May 2008, 1190 posts, RR: 10
Reply 66, posted (2 years 8 months 1 day 3 hours ago) and read 10248 times:

Perfect name.....Monroe Energy!

User currently offlineBlueJuice From United States of America, joined Jun 2010, 255 posts, RR: 0
Reply 67, posted (2 years 8 months 1 day 2 hours ago) and read 10125 times:

Quoting burnsie28 (Reply 64):
Actually it will only directly supply operations in the Northeast, but the trade off from by-products would then supply the 80%.

Either way DL will get their fuel. My understanding of how the petroleum market works is that most products are "fungible." A refiner can puts a product into the pipeline system that meets certain standards and then pull the equivalent product elsewhere. If DL puts 250,000 barrels on JET-A into the pipeline system in PHL, they can then draw 250,000 barrels of equivalent fuel at ATL. Based on my watered down understanding, it sounds like DL will be cutting out the middleman. Saving just a little bit on the nearly 93 million barrels of fuel burned adds up quickly.


User currently offlineCoronado From United States of America, joined Jun 1999, 1213 posts, RR: 2
Reply 68, posted (2 years 8 months 23 hours ago) and read 9942 times:
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Quoting cokepopper (Reply 66):
Perfect name.....Monroe Energy!

Very nice for Delta to honor its original home town--
Amazing you can get a whole refinery for the cost of a single Triple 7, with maybe a spare engine!



The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
User currently offlineKaiGywer From United States of America, joined Oct 2003, 12286 posts, RR: 35
Reply 69, posted (2 years 8 months 23 hours ago) and read 9890 times:
AIRLINERS.NET CREW
FORUM MODERATOR

Quoting deltaffindfw (Reply 60):
Delta Air Lines (DAL) wholly-owned subsidiary, Monroe Energy LLC

Oil workers with flight benefits?  



“Once you have tasted flight, you will forever walk the earth with your eyes turned skyward, for there you have been, an
User currently offlineswafa From United States of America, joined Mar 2012, 24 posts, RR: 0
Reply 70, posted (2 years 8 months 21 hours ago) and read 9664 times:

Quoting GSPSPOT (Reply 48):

About 10 years ago, a rumor was floating around at WN that we were considering acquiring a refinery. Don't know how much truth there is to it, but it's clear the idea has been around for a while. I suspect GSPSPOT is right. If this works for Delta, the other airlines will have no choice but to follow suit. It's going to be hard to compete with an airline that has a 10% fuel cost advantage over you.


User currently offlineAirlineBrat From United States of America, joined Jan 2005, 657 posts, RR: 0
Reply 71, posted (2 years 8 months 20 hours ago) and read 9481 times:

So how are they going to get the jet fuel they refined in Pennsyltucky to their far flung stations around the world without spending their savings on transportation costs? A large tank transported using a holodeck?


I'm leavin on a jet plane. Don't know when I'll be back again....
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 72, posted (2 years 8 months 19 hours ago) and read 9451 times:

Quoting AirlineBrat (Reply 71):
So how are they going to get the jet fuel they refined in Pennsyltucky to their far flung stations around the world without spending their savings on transportation costs? A large tank transported using a holodeck?

Read the article......this refinery will be used to refine oil into jet fuel for use in DL's ops in the Northeast. Other byproducts will be traded for jet fuel in other locations on the system.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineairtechy From United States of America, joined Dec 2006, 520 posts, RR: 0
Reply 73, posted (2 years 8 months 19 hours ago) and read 9382 times:

If the numbers work out, this could be very beneficial to all the involved parties. The barter arrangement is probably key. 80 percent of domestic consumption seems huge.

If successful, I wonder how the Delta's competitors are going to match this? Refineries probably don't come on the market everyday.


User currently offlinerdh3e From United States of America, joined Mar 2011, 1828 posts, RR: 3
Reply 74, posted (2 years 8 months 18 hours ago) and read 9368 times:

This makes zero sense. All their saying is that regardless of DL's involvment, with merely some investment this refinery could turn a $300M per year profit. Someone correct me, because the refinery with the same exact investment from another source could get market price for its JET-A, so what was stopping them from doing the exact same thing before? There is NO WAY that DL can make 200% a year on a project like this and Conoco Phillips was losing money. NO WAY.

User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1065 posts, RR: 1
Reply 75, posted (2 years 8 months 8 hours ago) and read 8984 times:

http://money.cnn.com/2012/04/30/news...a-oil-refinery/index.htm?hpt=hp_t2

I can't think of this as anything other than brilliant. There is tons if refinery expertise to make this thing run, and Delta can use this refineries and trade output 100% of the time.

Operating this thing with any sort of reasonable efficiency (for which they can license technology) should ensure operations in the black. Maybe not very profitable, but in the black.

However, the cost of speculation on the refinery output (not general crude), with 100% of the output being consumed internally, is highly reduced.

From a cost reduction standpoint / ROI numbers, how low would the real cost savings have to go before it is worth it to buy another widebody instead? A lot less than $300 million a year, than is claimed. They have a LOT of room on this versus other things to do with their capital.

The only bug is what happens if there is a refinery accident and the thing goes down? That's the risk and a substantial one.

Still, Delta got a sweet deal. The world's leading airlines are now Delta and Emirates. Superior management. SQ honorable mention. UA has it's work cut out for them.


User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1065 posts, RR: 1
Reply 76, posted (2 years 8 months 8 hours ago) and read 8964 times:

Quoting Coronado (Reply 61):

Most telling comment from Delta is that they expect to recoup their investment in the first year! That is pretty impressive.
Even if they only achieve 25% of that, it results in a payback of 4 years.

To restate an earlier post, how would this compare to the payback on a new 77L? or 77W?


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 77, posted (2 years 8 months 6 hours ago) and read 8810 times:

Quoting rdh3e (Reply 74):

Is anyone reading the article???



What gets measured gets done.
User currently offlinerdh3e From United States of America, joined Mar 2011, 1828 posts, RR: 3
Reply 78, posted (2 years 8 months 6 hours ago) and read 8763 times:

Quoting FlyASAGuy2005 (Reply 77):
Is anyone reading the article???

Yeah, and it doesn't take a genius to understand that it didn't have to be DL doing this. ANYONE could have made the identical investment and gotten the same returns, if there were any to be had.

You can vilify me now, but this is a bad idea that will cost the company a lot of money. Just because the CEO says it's going to save them $300M a year doesn't mean it's actually going to happen. It's going to be really funny when their facility can't beat the market crack spread and they end up paying over market for their jet fuel.

Quote:
Richard Soultanian, an energy analyst and co-president at NUS Consulting, called the acquisition "a gamble." Delta, he said, is attempting "to take greater control over one of their biggest inputs," cutting out the costs added by speculators and marketing by intermediaries.
"Owning and operating a refinery is a very different business than what they're accustomed to, so I'll be curious to see how they do that," Soultanian said. "It could be a brilliant move, or it could be an absolute disaster -- only time will tell at this juncture."
http://money.cnn.com/2012/04/30/news...l-refinery/index.htm?iid=SF_BN_MPM

Let me reiterate the guy just said "it could be an absolute disaster"  rotfl  . Which means it's probably not a shoe in like all of you seem to believe.

[Edited 2012-05-01 11:13:10]

User currently offlinejetlanta From United States of America, joined Jul 2001, 3365 posts, RR: 35
Reply 79, posted (2 years 8 months 5 hours ago) and read 8679 times:

Quoting rdh3e (Reply 78):
Let me reiterate the guy just said "it could be an absolute disaster"    . Which means it's probably not a shoe in like all of you seem to believe.

Forgive me if I don't read much into the opinion of someone who doesn't consider it a "shoe in".


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 80, posted (2 years 8 months 5 hours ago) and read 8650 times:

Quoting rdh3e (Reply 78):
Let me reiterate the guy just said "it could be an absolute disaster" rotfl . Which means it's probably not a shoe in like all of you seem to believe.

Apparently, Mr. Soultanian failed to ready any of the articles, either. You, on the other hand are just a skeptic, because it's DL doing this. Do either of you gentlemen actually think it will be ex-airline people running this or do you think they've hired people with experience with this to run it?



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineCoronado From United States of America, joined Jun 1999, 1213 posts, RR: 2
Reply 81, posted (2 years 8 months 5 hours ago) and read 8648 times:
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Quoting justloveplanes (Reply 76):
To restate an earlier post, how would this compare to the payback on a new 77L? or 77W?

A very rough back of the envelope calculation for Delta who in the last 2 years has been approximating a 10% annual ROIC (return on invested capital) thereby suggests the payback period on a 777 is at least 10 years (10 years, 10% per year to recover the investment). This ignores net present value adjustments, nor the effect of permitted depreciation on net cash flow and taxation, etc, but is a big improvement compared to a few years ago when some of the stronger US airlines such as Delta were generating paltry 2 or 3% ROIC's. In this case the payback period on putting your money into a new 777 starts stretching out to 20 or even 30 years if they can't be deployed profitably.

The payback period on a 777 that it yielding less than its operating costs, including its allocation of overhead, including lease or debt payments, puts the return on invested capital in the negative range,



The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
User currently offlinerdh3e From United States of America, joined Mar 2011, 1828 posts, RR: 3
Reply 82, posted (2 years 8 months 4 hours ago) and read 8562 times:

Quoting mayor (Reply 80):
Apparently, Mr. Soultanian failed to ready any of the articles, either. You, on the other hand are just a skeptic, because it's DL doing this. Do either of you gentlemen actually think it will be ex-airline people running this or do you think they've hired people with experience with this to run it?

I've read all the articles linked to this post. The most definitive piece of "evidence" that says DL is going to make money is their CEO saying they are going to. Every article says the same thing "Delta says....[cost savings]."

And no, it won't be DL people running it, but do you believe they have a better eye for talented oil industry personnel than Conoco does?


User currently offlinejustloveplanes From United States of America, joined Jul 2004, 1065 posts, RR: 1
Reply 83, posted (2 years 8 months 2 hours ago) and read 8463 times:

Quoting rdh3e (Reply 78):
You can vilify me now, but this is a bad idea that will cost the company a lot of money. Just because the CEO says it's going to save them $300M a year doesn't mean it's actually going to happen. It's going to be really funny when their facility can't beat the market crack spread and they end up paying over market for their jet fuel.

Quote:
Richard Soultanian, an energy analyst and co-president at NUS Consulting, called the acquisition "a gamble." Delta, he said, is attempting "to take greater control over one of their biggest inputs," cutting out the costs added by speculators and marketing by intermediaries.
"Owning and operating a refinery is a very different business than what they're accustomed to, so I'll be curious to see how they do that," Soultanian said. "It could be a brilliant move, or it could be an absolute disaster -- only time will tell at this juncture."
http://money.cnn.com/2012/04/30/news...l-refinery/index.htm?iid=SF_BN_MPM

Let me reiterate the guy just said "it could be an absolute disaster"    . Which means it's probably not a shoe in like all of you seem to believe.

A few points to reiterate here.

1) Delta didn't say $300 million per year profit. They said $300 million per year cost savings versus the open market purchase of fuel. Big difference. They don't need to run at $300 million per year in the black on the refinery side. They can run break even and pass on the savings and that can include marketing costs, sales, terms of pricing/interest and other costs besides profit to third parties that are reduced.

2) There will be experienced senior refinery managers lining up around the block to take this job. It is a perfect job for a senior and experienced manager that has had it with the rat race and just wants to run the best jet fuel refinery in the world and have a great time doing just that. He has one contract for one product for one customer. Customer is guaranteed and all the risk management for different customers, all the overhead and time and politics and meetings associated...GONE. "Who wants a great refinery management job? Big bonus plan.. TWO requirements, Run it clean, Run it steady. Call Delta." Independent refineries are not dead, they can be run profitably.

3) The benefits of stability. Hedge funds and other measures to deal with wild petroleum swings are reduced as is the need for energy driven capacity cuts. Where the other guys have to throw in the towel on marginal routes when the energy pain threshold swings high, Delta will have a higher tolerance. This will give it huge advantage in market share. When Southwest was the low cost guy, when prices went up, they took over market from others. Delta will do a similar thing. This calculation may or may not be part of the $300 million, but this benefit alone is worth the project, even it if didn't save Delta a dime on the monthly ledger. The can optimize around more stable prices.

This may be a groundswell. There is no reason why other entities, such as municipalities and power companies that swing on carbon based fuels can't learn from this. And a big airline is perfect for this app (and a big advantage versus smaller airlines, biiigggg). Just have to have a plan when the thing is down, especially from a traumatic event like an explosion.


User currently offlineirshava From Ukraine, joined Oct 2011, 249 posts, RR: 0
Reply 84, posted (2 years 8 months ago) and read 8337 times:

Probably the smartest thing I've ever seen an airline do....


“If you were born without wings, do nothing to prevent them from growing.”
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 85, posted (2 years 7 months 4 weeks 1 day 22 hours ago) and read 8249 times:

Quoting irshava (Reply 84):

There's a PowerPoint floating around on their investor relations site outlining the entire deal in detail. What you've summed up nicely portrays what I read. I think there's going to be a little more to in that just the estimated $300M annual savings.

Quoting justloveplanes (Reply 83):

It's up there  . BTW, Wall Street seems to love the idea..

No doubt we'll know pretty quickly if the investment is worth it. The deal will be closed by Q2 with the plant being operational shortly after and the necessry upgrades being made Q3. They want this thing going quickly and thats no secret. There must be a reason for that..they expect to realize about $100M in savings from Q3 to the end of the year. Monroe is fronting $100M for the upgrades to increase Jet-A production so that investment alone will be returned almost immediately.



What gets measured gets done.
User currently offlineAeroWesty From United States of America, joined Oct 2004, 20822 posts, RR: 62
Reply 86, posted (2 years 7 months 4 weeks 1 day 21 hours ago) and read 8168 times:

Quoting FlyASAGuy2005 (Reply 85):
No doubt we'll know pretty quickly if the investment is worth it.

We'll never really know how much DL makes or saves on this project, because we'll never know what the price of Jet-A would have been without DL bringing more product into the market. All we'll ever see is the difference that DL is saving between what they can produce and deliver Jet-A to JFK for vs. what it costs on the open market, with their supply accounted and adjusted for already.

Still, I think it's a great idea, since it will keep a supply of Jet-A in the market that wouldn't have been there, allowing other refineries to supply different metropolitan areas, rather than diverting fuel to NYC. More supply = lower prices.



International Homo of Mystery
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 87, posted (2 years 7 months 4 weeks 1 day 19 hours ago) and read 8077 times:

Quoting rdh3e (Reply 82):

And no, it won't be DL people running it, but do you believe they have a better eye for talented oil industry personnel than Conoco does?

Of course they don't......but we don't know WHERE they're getting the people from, now do we? Could be Conoco or some other company, experienced in refining. I've not read in ANY of the articles where DL has said the people would be coming from the airline side, have you? Monroe LLC will put together many experienced people to run it and it might even be those people that were going to lose their jobs when Conoco planned to shut it down, this summer.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 88, posted (2 years 7 months 4 weeks 1 day 19 hours ago) and read 8057 times:

Quoting mayor (Reply 87):

CNN ran a story today about the whole things. The top managers will be a host of different people from the refining industry. All recruited by on recommendations from industry firms. The actual blue collar workers will be the former workers that had been out of a job since the plant was idled. Also mentioned a deal's already been struck with the steel worker's union that represent them.

So for those that don't seem to get it..no DL is not really running the show. Subject matter experts will handle the day-to-day operations of Monroe who will focus only on the Philly site. Only tie is DL owns Monroe.



What gets measured gets done.
User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 89, posted (2 years 7 months 4 weeks 1 day 13 hours ago) and read 7942 times:

People don't understand this because they don't understand the downstream oil business.

Either this is very very smart or very very dumb. JPM isn't dumb.


The reason a lot of refineries have been closing in the US East Coast and that huge Hovensa one in the US Virgin Islands is that they have been set up to process sweet, light crude. Like Brent or Bonny Light crude. This crude is priced similar to brent at ~$115-125+/barrel currently. Those refineries that have been shut cannot process heavier, more sour oils....so they are less competitive. If you can process $80-100/barrel oil into $3.80/gallon gasoline/Jet-A, but your competitor refinery can only process $110-125/barrel oil...whose spreads do you think are larger? You make money on the spread.

Delta will have to upgrade the refinery at a cost of $$$ millions in order to be competitive.

Furthermore, the US is exporting refined goods at present because the US demand is slack for distillates and gasoline.

------

In my view only, Delta would better spend this money buying part of an oil producing operation. Part of an oil field, etc. But I would not write off this idea of buying an oil refinery just yet. It seems fairly smart to me. As long as it is run correctly and can be competitive with the rest of the downstream industry.



oh boy!!!
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 90, posted (2 years 7 months 4 weeks 1 day 11 hours ago) and read 7823 times:

Quoting Pellegrine (Reply 89):

Which is exactly what they are doing. At a tune of $100M this year alone to increase Jet-A production. Here are the numbers:

At the point of trainer being idled, it's product output was -
52% Gasoline
19% Diesel
15% "Other"
14% Jet-A

After the upgrades to be made Q3 -
43% Gasoline
32% Jet-A
18% Diesel
7% "Other"



What gets measured gets done.
User currently offlineFlighty From United States of America, joined Apr 2007, 8775 posts, RR: 3
Reply 91, posted (2 years 7 months 4 weeks 1 day 10 hours ago) and read 7792 times:

Quoting Pellegrine (Reply 89):
You make money on the spread.

Precisely. The spread (the "crack" premium) goes up and down sort of wildly.

In the past, Delta Air Lines PAID this premium.

Now, they can pay and collect the premium. Pay and collect! The sum can be near zero at all times.

That is a reduction in cost volatility, and that is good. Even if the effort loses a bit of money, it is still well worth it. Reducing volatility (insurance) is something with inherent cash value.

This won't reduce Delta's exposure to oil prices. For that, they would need to own oil wells. But it does take care of the crack premium. I think that's a QED.


User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 92, posted (2 years 7 months 4 weeks 1 day 10 hours ago) and read 7760 times:

Quoting FlyASAGuy2005 (Reply 90):
Which is exactly what they are doing. At a tune of $100M this year alone to increase Jet-A production. Here are the numbers:

All those percentages depend on what kind of crude oil they import into the refinery. Their refurbishing should consider processing heavier and more sour crude oils as well.

[Edited 2012-05-02 06:53:03]


oh boy!!!
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 93, posted (2 years 7 months 4 weeks 1 day 10 hours ago) and read 7753 times:

Quoting Pellegrine (Reply 92):

Wouldn't that require a coker type system which would be in the billion $ range? As I understand it, they are converting and upgrading current equipment to push out more Jet-A. Im not sure about being able to refine the heavier stuff.



What gets measured gets done.
User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 94, posted (2 years 7 months 4 weeks 1 day 10 hours ago) and read 7724 times:

Quoting FlyASAGuy2005 (Reply 93):

Wouldn't that require a coker type system which would be in the billion $ range? As I understand it, they are converting and upgrading current equipment to push out more Jet-A. Im not sure about being able to refine the heavier stuff.


Yes and no. It depends how heavy you want to get. I don't think they need to do it re. the coker. Unless they want to process "extra heavy" crude oil. Similar to an upgrading unit. Trainer is not processing bitumen from Canada or Venezuela, so it does not need this. The Trainer refinery has a processing capacity of 185,000 barrels/day of light, sweet crude. The historical exporters to Trainer were West African, Canadian (East Coast Offshore), and North Sea oil producers...all light, sweet crude producers. It would be more economic to import more heavy/sour crude from the Caribbean/South America or African/Mid-East crude if they could process it. This is where the necessary upgrades come in.



oh boy!!!
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 95, posted (2 years 7 months 4 weeks 1 day 9 hours ago) and read 7677 times:

Quoting Pellegrine (Reply 94):
Quoting Pellegrine (Reply 94):

Thanks for the explanation. As I understand it, BP will source the oil needed for Trainer. Where they will be getting it from, i.e. kind of telling us the quality of crude remains to be seen. So generally, do you get the output % they have posted from heavier oil or light-sweet? I thought light produced a higher amount of pretrol with heavier/sour producing diesel.



What gets measured gets done.
User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 96, posted (2 years 7 months 4 weeks 1 day 9 hours ago) and read 7649 times:

Quoting FlyASAGuy2005 (Reply 95):
Thanks for the explanation. As I understand it, BP will source the oil needed for Trainer. Where they will be getting it from, i.e. kind of telling us the quality of crude remains to be seen. So generally, do you get the output % they have posted from heavier oil or light-sweet? I thought light produced a higher amount of pretrol with heavier/sour producing diesel.

Output is dependent on two things. Input and the processing facilities a refinery has. Regardless of those two variables, you are going to get an output % range of oil products just like what you posted. So quite possibly Delta will be reconfiguring this refinery to produce more distillates (kerosene...Jet-A).

They could get the outputs you posted from light oil, medium weight, heavy oil. Sour/sweet doesn't matter as long as they have something like a hydrodesuphurization unit which isn't rare. The only thing slightly odd to me is going from 15% "other" to 7% "other". "Other" in your breakdown is usually heavy fractions like bunker oil, heating oil, asphaltum, tar... To turn that into lighter distillates you'd need a catalytic cracker. I don't know the particulars of Trainer, but these upgrades, or a coker for that matter, shouldn't be $1 billion. But that depends on the throughput desired as well. I'm holding judgement because I don't know enough about the specific details of Trainer or what upgrades Monroe is going to do to it.



oh boy!!!
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 97, posted (2 years 7 months 4 weeks 1 day 9 hours ago) and read 7647 times:

I'll stick my neck out and say in 5 years DL will be sorry they did this. Think about it, if a company like Conoco with a hundred years of experience in the oil refining business can't make the Philadelphia refinery run profitably, how can an airline make it work? This refinery is old and has suffered from a lack of investment in upgrades. It'll be a money pit.

User currently offlinecatiii From United States of America, joined Mar 2008, 3094 posts, RR: 4
Reply 98, posted (2 years 7 months 4 weeks 1 day 6 hours ago) and read 7551 times:

Interesting take on the deal here: http://seekingalpha.com/article/5458...-refinery-deal-all-about-southwest

Fair use: Delta Airlines' (DAL) agreement to buy a ConocoPhilips (COP) refinery in Pennsylvania is all about Southwest Air (LUV). Delta's ongoing battle with Southwest is about costs. Delta's hub-and-spoke system is inherently less efficient than Southwest's network of short flights that just go back-and-forth. But because Southwest has now been around for a generation and accepted unions, while Delta has always pushed back against workers, it may actually have an advantage in labor costs.


User currently offlineDeltaL1011man From United States of America, joined Sep 2005, 9700 posts, RR: 15
Reply 99, posted (2 years 7 months 4 weeks 1 day 6 hours ago) and read 7515 times:

Quoting mcg (Reply 97):

Delta isn't wanting this to be profitable per say. They want it to break even and pass on ~300M in saving to the airline. With almost all of the product going back to Delta, some of which is via swaps, the refinery making a large profit would mean it is costing Delta money. So the point here is to sell the Jet-A to Delta at cost, and swap the "other" products for Jet-A, again at cost. The only way this becomes a complete failure is if the refinery cost get above the price of market Jet-A. It needs to break even and that is about it.

You are looking at the refinery from a gas companies point of view. If Delta was going to try to run a gas company you have a point, but all they want to do is cut out the middle man, thus having a refinery breaking even, and passing on those saving to the airline.



yep.
User currently offlineFlighty From United States of America, joined Apr 2007, 8775 posts, RR: 3
Reply 100, posted (2 years 7 months 4 weeks 1 day 5 hours ago) and read 7504 times:

Quoting catiii (Reply 98):
Delta's hub-and-spoke system is inherently less efficient than Southwest's network of short flights that just go back-and-forth.

That is written by someone who does not understand the issue. Southwest's network is more fuel consumptive and lower revenue. Southwest survives because they have a semi monopoly on their network structure, despite lower efficiency. Hub/spoke conserves fuel, air time and pilot time. WN used to serve 45 cities with 500 aircraft... that should say something.


User currently offlinerdh3e From United States of America, joined Mar 2011, 1828 posts, RR: 3
Reply 101, posted (2 years 7 months 4 weeks 1 day 5 hours ago) and read 7474 times:

Quoting DeltaL1011man (Reply 99):
Delta isn't wanting this to be profitable per say. They want it to break even and pass on ~300M in saving to the airline. With almost all of the product going back to Delta, some of which is via swaps, the refinery making a large profit would mean it is costing Delta money. So the point here is to sell the Jet-A to Delta at cost, and swap the "other" products for Jet-A, again at cost. The only way this becomes a complete failure is if the refinery cost get above the price of market Jet-A. It needs to break even and that is about it.

....That is the definition of profit. Either the refinery profits from DL by DL paying "monroe" market price, then rolling the profits up to DL, or DL pays Monroe Cost, and DL records the profit on its books. So yes, they need the refinery to be a 'profitable' investment. You're just getting a little lost in the semantics of the accounting.


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 102, posted (2 years 7 months 4 weeks 1 day 3 hours ago) and read 7414 times:

Quoting Flighty (Reply 100):
WN used to serve 45 cities with 500 aircraft... that should say something.

Ding ding ding...



What gets measured gets done.
User currently offlinejbmitt From United States of America, joined Jan 2002, 549 posts, RR: 2
Reply 103, posted (2 years 7 months 4 weeks 23 hours ago) and read 7320 times:

Quoting mcg (Reply 97):

I'll stick my neck out and say in 5 years DL will be sorry they did this. Think about it, if a company like Conoco with a hundred years of experience in the oil refining business can't make the Philadelphia refinery run profitably, how can an airline make it work? This refinery is old and has suffered from a lack of investment in upgrades. It'll be a money pit.

How is this any different from airlines reducing seats/removing planes to drive up yield? Why would an oil company produce more product if it can reduce supply and increase profit?


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 104, posted (2 years 7 months 4 weeks 23 hours ago) and read 7289 times:

Quoting mcg (Reply 97):
I'll stick my neck out and say in 5 years DL will be sorry they did this. Think about it, if a company like Conoco with a hundred years of experience in the oil refining business can't make the Philadelphia refinery run profitably, how can an airline make it work? This refinery is old and has suffered from a lack of investment in upgrades. It'll be a money pit.

An oil company isn't operating it for the same reasons that DL will be. The oil company is operating it to turn a profit by selling the product they produce. DL will, basically, be operating it to produce jet fuel for themselves, which, in turn, will help their OWN profits by reducing their fuel costs. In addition, they will trade any other products that they produce to other oil companys for jet fuel in other places on the system.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineNYCAdvantage From United States of America, joined Sep 2009, 361 posts, RR: 0
Reply 105, posted (2 years 7 months 4 weeks 23 hours ago) and read 7286 times:

Quoting jbmitt (Reply 103):

I think almost the same, by Delta consuming most of its refined Jet fuel there may be over capacity meaning lower prices on Jet A fuel, If that ever happens, the oil companies may close more refineries in order to raise prices in the future
And then what happens Delta could have a huge advantage domestically, I think this is a big risk deal but they can have a huge pay back in return. The risk is worth.


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 106, posted (2 years 7 months 4 weeks 19 hours ago) and read 7158 times:

Link to the investor presentation if anyone's interested..

http://services.corporate-ir.net/SEC...FpckxpbmVzXzhLXzIwMTIwNDMwLnBkZg==



What gets measured gets done.
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 107, posted (2 years 7 months 4 weeks 9 hours ago) and read 7005 times:

Quoting mayor (Reply 104):
An oil company isn't operating it for the same reasons that DL will be. The oil company is operating it to turn a profit by selling the product they produce. DL will, basically, be operating it to produce jet fuel for themselves, which, in turn, will help their OWN profits by reducing their fuel costs. In addition, they will trade any other products that they produce to other oil companys for jet fuel in other places on the system.

Sorry, with all due respect, if DL is going to invest $150+ million in the refinery, it must generate an economic profit. All the chatter about simply 'reducing fuel cost' is nonsense; the refinery has to be profitable by selling refined petroleum products, either to the airline or to someone else. The products are sold at market prices. If the refinery can make a profit DL wins, if not DL loses. Conoco, a company with over a hundred years experience and one of the largest refiners in the world, couldn't figure out how to operate it profitably. They chose to close it and were prepared to write it off until DL showed up.

This refinery was shopped to every refining company in the world, and they all passed. They did so for a reason. If Valero, Tesoro, HollyFrontier and Motiva can't make it work, DL can't. And for the record, I wouldn't expect any of the refining companies to be able to run an airline, something DL is pretty good at.


User currently offlineVictorKilo From United States of America, joined Jul 2006, 316 posts, RR: 0
Reply 108, posted (2 years 7 months 4 weeks 9 hours ago) and read 6974 times:

Quoting mcg (Reply 107):
This refinery was shopped to every refining company in the world, and they all passed. They did so for a reason. If Valero, Tesoro, HollyFrontier and Motiva can't make it work, DL can't.

The difference is that Delta can bet both sides of the Jet-A crack spread. A refiner can't. They would lose their bet if the crack spread of Jet-A collapses. Right now Delta loses if the crack spread doesn't collapse. Buying the refinery keeps Delta from losing money if the crack spread stays the saem or increases. And if the spread collapses, well, they'll make money from the airline.

Buying the refinery increases the business risk of a refiner. Buying this refinery reduces the business risk for Delta. And that's why this is a good deal for Delta - and why this refinery is worth more to Delta than to Valero et. al.


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 109, posted (2 years 7 months 4 weeks 8 hours ago) and read 6962 times:

Quoting VictorKilo (Reply 108):
The difference is that Delta can bet both sides of the Jet-A crack spread.


I respectfully disagree. If the crack spread is small, the investment in the refinery is bad. There is no offset at the airline because the airline would be buying jet fuel whether DL owned the refinery or not. I wish them well, but I think buying this refinery is a first-class error.


User currently offlinerdh3e From United States of America, joined Mar 2011, 1828 posts, RR: 3
Reply 110, posted (2 years 7 months 4 weeks 8 hours ago) and read 6908 times:

Quoting VictorKilo (Reply 108):
And if the spread collapses, well, they'll make money from the airline.
Quoting mcg (Reply 109):
I respectfully disagree. If the crack spread is small, the investment in the refinery is bad. There is no offset at the airline because the airline would be buying jet fuel whether DL owned the refinery or not. I wish them well, but I think buying this refinery is a first-class error.

   Well said.


User currently offlinerwy04lga From United States of America, joined Jul 2005, 3176 posts, RR: 8
Reply 111, posted (2 years 7 months 4 weeks 5 hours ago) and read 6797 times:

Quoting catiii (Reply 98):
Delta has always pushed back against workers
 


Didn't CO buy a catering company to supply their meals instead of buying them from another catering company at market prices? Is Delta buying their own refinery to provide their own jet-A that much different?



Just accept that some days, you're the pigeon, and other days the statue
User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 112, posted (2 years 7 months 3 weeks 6 days 12 hours ago) and read 6589 times:

Quoting VictorKilo (Reply 108):
The difference is that Delta can bet both sides of the Jet-A crack spread. A refiner can't. They would lose their bet if the crack spread of Jet-A collapses.

Actually a refiner could bet anything he wanted re. the crack spread through listed or synthetic derivatives on the CME or European/Asian exchanges.

What some of you guys don't get is WHY East Coast refineries have been shutting down....WHY buying a shuttered East Coast refinery is cheap....and WHY NOW DL chooses to buy an East Coast refinery.

This is Airliners.net and not Refineries.net, but ask yourselves this:

Why are these East Coast (and Caribbean) refineries shutting down or operating at under 50% capacity, when Midwest and Gulf Coast refineries are operating flat out?

Delta/Monroe has some work to do.



oh boy!!!
User currently offlineDalmd88 From United States of America, joined Jul 2000, 2615 posts, RR: 14
Reply 113, posted (2 years 7 months 3 weeks 6 days 11 hours ago) and read 6558 times:

Quoting mcg (Reply 107):
This refinery was shopped to every refining company in the world, and they all passed. They did so for a reason. If Valero, Tesoro, HollyFrontier and Motiva can't make it work, DL can't. And for the record, I wouldn't expect any of the refining companies to be able to run an airline, something DL is pretty good at.

These oil companies do run airlines. They all have corporate flight departments that don't make a profit, but are very important to the company. Without those flight departments they would be dependent on airlines like DL to move their people around.

I don't know if this is going to work out for DL, but I think it is a good move. It shows they are looking under every rock to be competitive. As for the start up cost, sure to me $250M sounds like a lot of money, until it is used in the same statement as DL $12B yearly fuel costs.


User currently offlinecatiii From United States of America, joined Mar 2008, 3094 posts, RR: 4
Reply 114, posted (2 years 7 months 3 weeks 6 days 10 hours ago) and read 6504 times:

Quoting Dalmd88 (Reply 113):
These oil companies do run airlines. They all have corporate flight departments that don't make a profit, but are very important to the company. Without those flight departments they would be dependent on airlines like DL to move their people around.

Hardly. You certainly can not compare running, say, a mix of 10 G-550's, Canadairs, and Global Expresses to a major network airline.

Ironically, Brent down 2% today to 113. I wonder what the business model for the refinery says Brent has to be at for the refinery to be a worthwhile investment.


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 115, posted (2 years 7 months 3 weeks 6 days 8 hours ago) and read 6426 times:

Quoting Dalmd88 (Reply 113):
These oil companies do run airlines.

You are correct, sort of. The oil companies have relatively large corporate aviation departments that provide two services airlines don't: first, highly secure and comfortable executive transportation; second, transport to remote locations not served by airlines.

The difference is that neither of these services are available otherwise and the oil companies are happy to bear the expense of providing them. You can buy jet fuel anywhere in the world (almost) and you don't have to invest $150 million and bear the operational risk of owning a refinery.

Remember, Conoco was prepared to close and write off the Philadelphia refinery, and they absolutely know how to run an oil refinery. It's going to be hard for a novice to do so efficiently.


User currently offlineViscount724 From Switzerland, joined Oct 2006, 26029 posts, RR: 22
Reply 116, posted (2 years 7 months 3 weeks 6 days 3 hours ago) and read 6315 times:

Quoting mcg (Reply 115):
Quoting Dalmd88 (Reply 113):
These oil companies do run airlines.

You are correct, sort of. The oil companies have relatively large corporate aviation departments that provide two services airlines don't: first, highly secure and comfortable executive transportation; second, transport to remote locations not served by airlines.

Two examples of major Canadian oil companies, both with several aircraft used to shuttle workers to/from remote oil sands operations in northern Alberta, and other locations. There are 4 or 5 private strips operated by the various major oil sands operators close to their facilities.

YYC-based Suncor Energy has an especially large fleet, including 3 corporate shuttle versions of the CRJ-900 and one CRJ-200, plus a couple of smaller bizjets.


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Shell Canada, also based YYC, with an Embraer 170 and Dornier 328.


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User currently offlineFlighty From United States of America, joined Apr 2007, 8775 posts, RR: 3
Reply 117, posted (2 years 7 months 3 weeks 6 days 3 hours ago) and read 6296 times:

Quoting catiii (Reply 114):
I wonder what the business model for the refinery says Brent has to be at for the refinery to be a worthwhile investment.

It doesn't have to do with that. A refinery does not create any oil. This was done so Delta (in effect) does not have to pay oil refiners. That is what this is about. The issue is only 1/10th as big as the oil issue. But the refining premium was an erratic, cyclical cost that Delta was paying out of pocket. And now they don't have to. They can pipe this Jet-A all over the Northeast and market it to all (then paying other refiners selling Jet-A to Delta worldwide).


User currently offlineBWI5OH From United States of America, joined Apr 2007, 166 posts, RR: 1
Reply 118, posted (2 years 7 months 3 weeks 6 days 3 hours ago) and read 6287 times:

Gee, I hope UA doesn't find out about this...they'll try to buy the BP refinery in Texas City that's been on the chopping block for over a year. (Needs upwards of $150 million in upgrades and has numerous safety violations) Just a bad joke guys, sorry.

I think this is an excellent move for Delta. The initial cost, upgrades, contractual obligations and actual cost of refining will pay for itself. As said before, this is a little different than an ordinary refinery. Monroe is going to squeeze all of the JET-A they can get from the crude, pipe it to the NY area airports, and take what they need in ATL and elsewhere without paying a dime. (As long as they don't take more then they put in). Whatever is left, Monroe sells off to any market buyer at the highest price they can get.



"It's all fun and games until the cops show up"
User currently offlineViscount724 From Switzerland, joined Oct 2006, 26029 posts, RR: 22
Reply 119, posted (2 years 7 months 3 weeks 6 days 3 hours ago) and read 6279 times:

Long article on the DL refinery acquisition in this week's Aviation Week & Space Technology.
http://www.aviationweek.com/Article....l/AW_05_07_2012_p24-454371.xml&p=1


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 120, posted (2 years 7 months 3 weeks 6 days 2 hours ago) and read 6261 times:

Not a lot of real sharp analysis in that article. The idea that the refinery operation can subsidize the airline is pretty stupid. The refinery will need every cent it can find in the price of jet fuel sold to the airline to economically justify it's existence. Look at it this way, Conoco couldn't make it work charging 'full price' for it's products, how will DL be able to make it work charging something less?

User currently offlineAlnicocunife From United States of America, joined Mar 2011, 177 posts, RR: 0
Reply 121, posted (2 years 7 months 3 weeks 6 days 2 hours ago) and read 6234 times:

The refinery only has to break even or even if it loses some money it would be okay for Delta. If the savings in fuel costs is $.03 to $.10 a gallon and you buy millions of gallons a day the true savings adds up quickly. "Owning" a refinery and knowing you will be buying millions of barrels of crude means you get better rates than what we see on the spot market.

Whether you agree or not only time will tell. The Executive Management of Delta will be "GODS" of vilified as "IDIOTS"


User currently offlinepeanuts From Netherlands, joined Dec 2009, 1445 posts, RR: 4
Reply 122, posted (2 years 7 months 3 weeks 5 days 23 hours ago) and read 6169 times:

Quoting mcg (Reply 120):
Not a lot of real sharp analysis in that article.

I have yet to see a sharp post supporting your scepticism.

Granted there are some risks, but businesses thrive or fall taking risks. DL is on a mission to reduce long term debt. They are well on their way with that. This may help, or not. It's a calculated risk and $150M seems worth it in the grand scheme of things...

Quoting mcg (Reply 120):
Look at it this way, Conoco couldn't make it work charging 'full price' for it's products, how will DL be able to make it work charging something less?

It is simply the wrong question to ask. Conoco isn't Delta and Delta isn't Conoco. The Trainer facility may be able to do things for DL that Conoco was not able to do. How many failed businesses have been turned around into thriving entities? Plenty. It's a failed argument in Business 101. Everytime.

I fail to see the relevance of Conoco's "failure" here. In the end, did they really fail? They were able to offload this property. Maybe they have other needs/plans. Good for them.
DL is a customer to itself. That's not irrelevant. Many benefits can be had that way, including tax benefits.

Something tells me a healthy dose of scepticism is good and will drive DL to make this work.

[Edited 2012-05-04 17:58:48]


Question Conventional Wisdom. While not all commonly held beliefs are wrong…all should be questioned.
User currently offlineTVNWZ From United States of America, joined Feb 2006, 2415 posts, RR: 2
Reply 123, posted (2 years 7 months 3 weeks 5 days 23 hours ago) and read 6146 times:

Newspaper companies have been doing this for decades. At their peak, almost all of them owned forests and paper mills. The Medills, Pulitzers, Hearsts and others figured this out eons ago.

Can't wait until Delta buys a bunch of oil fields and tankers to complete the cycle,


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 124, posted (2 years 7 months 3 weeks 5 days 23 hours ago) and read 6148 times:

Quoting peanuts (Reply 122):
I fail to see the relevance of Conoco's "failure" here.

Conoco is one of the largest refiners of petroleum in the world. The know perfectly well how to run an oil refinery, they have been doing it for a hundred years. They've concluded that they can not run the refinery profitably. Every other refiner has come to the same conclusion. The reason for this is the Trainer facility is old and runs only very light sweet crude, thus crushing the crack spread that comes out of the facility. It will take millions and millions of dollars to upgrade the refinery to modern standards.

What special skills does DL have that might allow it to turn around this situation? None, remember simply being a large consumer of jet fuel doesn't get DL any special skill in terms of running the refinery. The refinery must sell it's output to the airline at whatever price jet fuel commands in the marketplace. The reason for this is that it will need every penny of revenue it can find to make the refinery an economic proposition.

It's absolutely true that should DL be able to operate the refinery profitably it will be good for DL. I just don't understand why DL would be able to do so if Conoco can't. I do wish then well.


User currently offlineFlighty From United States of America, joined Apr 2007, 8775 posts, RR: 3
Reply 125, posted (2 years 7 months 3 weeks 5 days 23 hours ago) and read 6119 times:

Quoting mcg (Reply 124):
What special skills does DL have that might allow it to turn around this situation?

Listen. The refinery can run at a slight overall loss and still be worth it. This is because it provides financial gains at the precise time when Delta would otherwise be searching for (very expensive) loans or (very expensive) employee buyouts during a fuel/refining crisis. Kind of like health insurance provides me money for emergency surgery at the exact time when I would not be able to earn that money. Particularly if I couldn't carry cash around due to a union rep whose eyes are on my wallet, who might not understand why financial strength is a good thing.


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 126, posted (2 years 7 months 3 weeks 5 days 21 hours ago) and read 6064 times:

Quoting Flighty (Reply 125):
Listen. The refinery can run at a slight overall loss and still be worth it. This is because it provides financial gains at the precise time when Delta would otherwise be searching for (very expensive) loans or (very expensive) employee buyouts during a fuel/refining crisis. Kind of like health insurance provides me money for emergency surgery at the exact time when I would not be able to earn that money. Particularly if I couldn't carry cash around due to a union rep whose eyes are on my wallet, who might not understand why financial strength is a good thing.


How does a refinery (or any asset) provide financial gains while running at a "slight overall loss"? The refinery only provide relief from refining costs if it can be successfully operated and all the evidence is that it can't. I don't see it as providing relief from refining cost, I see it an investment in a very difficult, risky business. If financial strength is the goal, put the money in the bank for the inevitable rainy day.

Don't get me wrong, I like Delta Airlines. I just don't see any evidence they have the knowledge and skills to turn a loss ridden oil refinery into a money maker. As I've said, if Conoco can't make it work, and Valero and Tesoro and HollyFrontier and Marathon don't wanna try, I just don't see what Delta has that they don't.


User currently offlinehaveasafeflight From , joined Dec 1969, posts, RR:
Reply 127, posted (2 years 7 months 3 weeks 5 days 20 hours ago) and read 6090 times:

What's new about this? Emirates had been using free fuel from under the Arabian sands for decades!

User currently offlinePellegrine From United States of America, joined Mar 2007, 2495 posts, RR: 8
Reply 128, posted (2 years 7 months 3 weeks 5 days 15 hours ago) and read 5990 times:

Here's a pretty good, succinct, related article for anyone who's interested. This gives insight into why refineries like Trainer closed in the first place, and why DL has the opportunity to buy now:

http://news.nationalgeographic.com/n...t-us-refinery-closures-gas-prices/

Fair-use excerpt:
"The price difference gives a huge advantage to refineries in the U.S. Midwest and the Gulf Coast that can buy WTI crude, over the refineries on East and West coasts that have to buy oil at the global Brent price. The advantage is especially great for refineries that are equipped to handle the further discounted heavier, "sour" crude, full of sulfur and impurities, like that from the Canadian oil sands.

Sunoco could process only light, sweet crude at its Pennsylvania refineries, and its earnings statements told the story of how much its once-prized East Coast location had diminished in value. Paying premium prices for crude, Sunoco lost money in 10 of the past 12 quarters. Its Northeast refining business has been in the red since 2008, with cumulative pre-tax losses of more than $900 million."



oh boy!!!
User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 129, posted (2 years 7 months 3 weeks 5 days 13 hours ago) and read 5940 times:

Quoting Alnicocunife (Reply 121):
The refinery only has to break even or even if it loses some money it would be okay for Delta. If the savings in fuel costs is $.03 to $.10 a gallon and you buy millions of gallons a day the true savings adds up quickly. "Owning" a refinery and knowing you will be buying millions of barrels of crude means you get better rates than what we see on the spot market.

Any loss by the refinery is a loss for Delta. It's a zero-sum game. It won't affect the market price for fuel, and every gallon "given" to Delta is a loss for the refinery ... that is, a loss for Delta.

If it were that easy to save money, Delta could just buy Boeing and get free planes . . .


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 130, posted (2 years 7 months 3 weeks 5 days 11 hours ago) and read 5893 times:

Quoting haveasafeflight (Reply 127):
Emirates had been using free fuel from under the Arabian sands for decades!

  

Quoting twinotter (Reply 129):
Any loss by the refinery is a loss for Delta. It's a zero-sum game.

You're thinking about it in the wrong way. Say that the refining typically add 10 cents per gallon. For simplicity let's say the entire 10 cents are "given" to DL. Let's also say the real refining cost is 9 cents per gallon. This means DL buys fuel at 10 cents less and then needs to go in and cover the 9 cent losses for a net gain of one cent.

The financial question is if that 1 cent gain justify the capital required to get it.


User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 131, posted (2 years 7 months 3 weeks 5 days 10 hours ago) and read 5867 times:

Quoting cmf (Reply 130):
You're thinking about it in the wrong way. Say that the refining typically add 10 cents per gallon. For simplicity let's say the entire 10 cents are "given" to DL. Let's also say the real refining cost is 9 cents per gallon. This means DL buys fuel at 10 cents less and then needs to go in and cover the 9 cent losses for a net gain of one cent.

Assume the production cost of the x amount of fuel that sells on the market for $1000 is $900. The Delta refinery division can do four things:

A) Sell it to another airline for $1000. Profit for the refinery $100. Delta has to buy fuel at market prices, so no change in its profitability.

Total profit: $100.

B) Sell it to Delta for $1000. Profit for the refinery $100. No change in DL airline profits, as fuel was sold at the market price.

Total profit: $100

C) Give it to Delta free. Loss for the refinery $900. DL airline makes an extra profit of $1000 because of free fuel.

Total profit $100

D) Sell it to Delta for $1500. Refinery makes a profit of $600. DL airline loses $500 because of buying fuel above market prices.

Total profit $100

It is indeed a zero-sum game.


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 132, posted (2 years 7 months 3 weeks 5 days 10 hours ago) and read 5856 times:

Quoting twinotter (Reply 131):
Assume the production cost of the x amount of fuel that sells on the market for $1000 is $900. The Delta refinery division can do four things:

A) Sell it to another airline for $1000. Profit for the refinery $100. Delta has to buy fuel at market prices, so no change in its profitability.

Total profit: $100.

B) Sell it to Delta for $1000. Profit for the refinery $100. No change in DL airline profits, as fuel was sold at the market price.

Total profit: $100

C) Give it to Delta free. Loss for the refinery $900. DL airline makes an extra profit of $1000 because of free fuel.

Total profit $100

D) Sell it to Delta for $1500. Refinery makes a profit of $600. DL airline loses $500 because of buying fuel above market prices.

Total profit $100

It is indeed a zero-sum game.

This analysis is correct, but incomplete. What if the cost of the fuel is $1,500? The loss in all cases to DL is $500. This has been the case in the Philadelphia refinery as it has failed to make a profit. It's not a profitable business.

What if you spend $150 million for the privilege of selling fuel at less than production cost? This is what DL has done.

The issue isn't vertical integration. Many businesses integrate in ways to control their inputs. The issue is doing profitable vertical integration.

Oil refining is a brutal business. It requires massive amounts of capital and works in a world of thin and volatile profit margins. The cost of the primary input (petroleum) is entirely out of the refiners control. The price of the finished product is entirely out of the refiners control. Both prices change every hour of every day. Competition is intense and products can be imported from more efficient facilities all over the world. Margins at the Philadelphia are particularly thin because it can only process the lightest, sweetest and most expensive crude.

The question is: What can DL do to change the fundamental operating economics of the Philadelphia refinery? I haven't heard any valid ideas.


User currently offlinedelta2ual From United States of America, joined Dec 2007, 626 posts, RR: 1
Reply 133, posted (2 years 7 months 3 weeks 5 days 9 hours ago) and read 5809 times:

Quoting catiii (Reply 98):
Delta's hub-and-spoke system is inherently less efficient than Southwest's network of short flights that just go back-and-forth.

Anytime an analyst says this, I wonder about their "expertise" in the airline industry. The only thing worse is when they add "into secondary airports". WN may not call them "hubs", but these mega "connecting points" or "focus cities" are just that. WN has changed over the last 40 years. They do connect passengers. They do have high labor costs. They serve many major, congested airports. They are flying longer flights than days of old. These airline "experts" need to get with the program.



From the world's largest airline-to the world's largest airline. Delta2ual
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 134, posted (2 years 7 months 3 weeks 5 days 9 hours ago) and read 5825 times:

So let me ask you something. If you guys came up with all these doom and gloom scenerios in all but 2 days. What has Delta, JP Morgan, Con., Phillips 66 and BP been doing the past 5 months?


What gets measured gets done.
User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 135, posted (2 years 7 months 3 weeks 5 days 8 hours ago) and read 5784 times:

Quoting FlyASAGuy2005 (Reply 134):
So let me ask you something. If you guys came up with all these doom and gloom scenerios in all but 2 days. What has Delta, JP Morgan, Con., Phillips 66 and BP been doing the past 5 months?

They apparently think (hope?) to gain some sort of advantage in futures trading by having the refinery. The point is, the benefit to Delta, if any, won't come from "cutting out the middleman to get fuel at wholesale cost" or "getting free fuel" or any such nonsense.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 136, posted (2 years 7 months 3 weeks 5 days 6 hours ago) and read 5708 times:

Quoting twinotter (Reply 131):
It is indeed a zero-sum game.

Your calculation comes up short. You only account for the refinery side of the calculation. You're missing the airline side of the equation.

My question is if airline improvement is more than the cost to gain it and if there are other investments with better return.


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 137, posted (2 years 7 months 3 weeks 5 days 5 hours ago) and read 5681 times:

Quoting mcg (Reply 124):
What special skills does DL have that might allow it to turn around this situation? None, remember simply being a large consumer of jet fuel doesn't get DL any special skill in terms of running the refinery. The refinery must sell it's output to the airline at whatever price jet fuel commands in the marketplace. The reason for this is that it will need every penny of revenue it can find to make the refinery an economic proposition.

DL has no special skills in this and they know that. More than likely, they're hiring the best they can find in this business and probably, also, those employees that Conoco would have let go if they had closed the refinery. THOSE are people that are experienced in the business.

It's no different than if Conoco had bought Delta, they certainly wouldn't bring in people from the oil company to run the airline.






Quoting catiii (Reply 98):
while Delta has always pushed back against workers,

DL hasn't ALWAYS pushed back against workers......they've pushed back against UNIONS. Big difference.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 138, posted (2 years 7 months 3 weeks 5 days 4 hours ago) and read 5637 times:

Quoting mayor (Reply 137):
DL has no special skills in this

What specific action might Delta take to turn a gigantic money losing asset into a profitable investment? They must do something, status quo won't work.


User currently offlinebobnwa From United States of America, joined Dec 2000, 6538 posts, RR: 9
Reply 139, posted (2 years 7 months 3 weeks 5 days 2 hours ago) and read 5601 times:

Quoting mcg (Reply 124):
What special skills does DL have that might allow it to turn around this situation

When has Delta ever said or intimated they plan to run the refinery themselves? I'll answer my own question, NEVER


User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 140, posted (2 years 7 months 3 weeks 5 days 1 hour ago) and read 5535 times:

Who will run it on behalf of DL and what specific actions will they take so that it is not a financial millstone for it's owner, Delta Airlines?

User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 141, posted (2 years 7 months 3 weeks 4 days 22 hours ago) and read 5462 times:

Quoting mcg (Reply 140):
Who will run it on behalf of DL and what specific actions will they take so that it is not a financial millstone for it's owner, Delta Airlines?

Monroe Energy, an LCC created by DL last year will run the plant. Monroe Energy has its own independent BOD and the top managers were recruited with the help of P66 and a firm owned by JP Morgan. They are all long time "oil people". The top boss @ Monroe Energy has over 25 years experience in the management of oil refineries. It's all in the powerpoint link I posted.



What gets measured gets done.
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 142, posted (2 years 7 months 3 weeks 4 days 22 hours ago) and read 5427 times:

The Powerpoint is interesting in that it assumes achievement of $300 million in refinery profits without saying how that will be achieved. Given that Conoco was planning on closing the facility, it seems unlikely to me that it is a profitable operation. Nowhere does Delta say the specific steps it will take to turnaround this operation.

$300 million aren't' really cost savings, it's Deltas claim as to what the refinery can earn next year. There is no disclosure as to how they might accomplish that level of profitability. Note that if DL fails to make the refinery profitable there are no cost savings, instead costs will rise.

As I've said, I wish Delta the best, it's just highly unclear to me how this investment will be profitable.


User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 143, posted (2 years 7 months 3 weeks 4 days 4 hours ago) and read 5245 times:

Quoting mcg (Reply 142):
The Powerpoint is interesting in that it assumes achievement of $300 million in refinery profits without saying how that will be achieved. Given that Conoco was planning on closing the facility, it seems unlikely to me that it is a profitable operation. Nowhere does Delta say the specific steps it will take to turnaround this operation.



It's a powerpoint. I'm not sure how much details you would expect them to give or if they would even want to for that matter. Like I said before, i'd trust them before other people that are coming to conlusions after only 5 minutes of reading by your own admission, very vague details. They've been working on this for the better part of 7 months with the help of the operator. I'd assume they've seen all the info they need.

Which brings me to my next point. Has ANYONE seen any literature that said this refinery was loosing money?



What gets measured gets done.
User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 144, posted (2 years 7 months 2 weeks 5 days 12 hours ago) and read 4968 times:

Quoting FlyASAGuy2005 (Reply 134):
If you guys came up with all these doom and gloom scenerios in all but 2 days. What has Delta, JP Morgan, Con., Phillips 66 and BP been doing the past 5 months?

Yeah, how could anything go wrong with Delta's plan?

NEW YORK (Dow Jones, May 11, 2012)--J.P. Morgan Chase & Co. (JPM) shares fell 9.3% Friday in a high-volume selloff, a day after Chief Executive James Dimon announced a massive, surprise $2 billion trading loss on credit derivatives.


User currently offlineAlnicocunife From United States of America, joined Mar 2011, 177 posts, RR: 0
Reply 145, posted (2 years 7 months 2 weeks 5 days 12 hours ago) and read 4965 times:

Aviation Week had an article about the risk/reward Delta is taking. Delta may be able to save $.20 a gallon especially out of JFK which happens to be very close to the refinery. That would put Delta at a large completive advantage out of one of the largest markets in the world.

User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 146, posted (2 years 7 months 2 weeks 5 days 8 hours ago) and read 4882 times:

Quoting twinotter (Reply 144):
Yeah, how could anything go wrong with Delta's plan?

Here we go...

Please point out to me where in this entire thread did I say that this purchase was fool-proof. Further, point out where I said it was a slm dunk and that nothing could go wrong.

If you had not just picked apart one posting you would see that my position was tha if people from the OUTSIDE could come up with a bunch of negatives in 5 minutes, don't you think for just a minute, that DL has ALREADY come up with these very negatives and made a comparison analysis?



What gets measured gets done.
User currently offlinepeanuts From Netherlands, joined Dec 2009, 1445 posts, RR: 4
Reply 147, posted (2 years 7 months 2 weeks 5 days 8 hours ago) and read 4876 times:

Quoting FlyASAGuy2005 (Reply 146):
Here we go...

Don't sweat it. For every positive, there's a negative. Count on it.
DL is fully aware of the risk factors.
Nobody gets ahead in life without taking any risks. Naysayers are just "the help" and "motivation". Sometimes they are right, sometimes they are wrong. Meanwhile, long term, companies still keep on growing. So in general, naysayers are, long term speaking, usually wrong.

[Edited 2012-05-12 08:34:06]


Question Conventional Wisdom. While not all commonly held beliefs are wrong…all should be questioned.
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 148, posted (2 years 7 months 2 weeks 5 days 8 hours ago) and read 4850 times:

Quoting peanuts (Reply 147):

Don't sweat it. For every positive, there's a negative. Count on it.

Seems that thru ALL of these threads, the naysayers are neglecting the fact that DL didn't buy the refinery for it to be run for the reasons that an oil company would.......producing products that could be SOLD on the open market. DL has made it quite clear that they are planning on using the jet fuel that they produce in their northeast operations and the other byproducts will be traded for more Jet A, thruout the system. To me, THAT is thinking outside the box.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinenomadd22 From United States of America, joined Feb 2008, 1903 posts, RR: 0
Reply 149, posted (2 years 7 months 2 weeks 5 days 8 hours ago) and read 4831 times:

Quoting mayor (Reply 148):

Seems that thru ALL of these threads, the naysayers are neglecting the fact that DL didn't buy the refinery for it to be run for the reasons that an oil company would.......producing products that could be SOLD on the open market. DL has made it quite clear that they are planning on using the jet fuel that they produce in their northeast operations and the other byproducts will be traded for more Jet A, thruout the system. To me, THAT is thinking outside the box.

Seems to me that, despite the perfect record of Delta and half the other F500 companies making completely nonsensical, often suicidal business decisions, some assume that everything they do is with carefull planning and has a solid business case. And ignore the fact that no business in the history of the world, no matter how idiotically run, is going to sell a unit capaple of generating $300 million a year in profit for $150 Millilon.
Nothing that Delta can do with those products is any different than the present operator can do. These horsetrading theories that people keep coming up with are pure nonsense. If Delta saved money on a gallon of Jet-A, then the present operator could have sold that gallon for the going price and made the same amount of money. Everything that goes out that gate is bought, sold and priced on the basis of the global market.

What Delta is buying for $150 million is what the present owner is selling. And that's one huge freakin liability. It would have taken years and cost billions to retire that non profitable plant. Now they've pawned it off on some sucker who thinks they can run it more profitably than the people who've been doing it for 100 years and ignores the vast amount of upgrade and maintenance the plant will require in the coming decades, as well as the cost of eventually decommissioning it.

I don't get this stuff from the back of a cereal box, by the way. I've spent many years in Dynegy and Chevron plants.

[Edited 2012-05-12 09:19:46]


Andy Goetsch
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 150, posted (2 years 7 months 2 weeks 5 days 8 hours ago) and read 4823 times:

Quoting nomadd22 (Reply 149):
is going to sell a unit capaple of generating $300 million a year in profit for $150 Millilon.

Perhaps you need to read it more carefully. In everything I've read that DL has said, it mentions nothing of $300mil a year in PROFITS........it mentions $300mil a year in SAVINGS. To me, it would only be profits if it was sold on the open market, not if DL was using the fuel for themselves.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 151, posted (2 years 7 months 2 weeks 5 days 6 hours ago) and read 4770 times:

Quoting mayor (Reply 150):
In everything I've read that DL has said, it mentions nothing of $300mil a year in PROFITS........it mentions $300mil a year in SAVINGS. To me, it would only be profits if it was sold on the open market, not if DL was using the fuel for themselves.

Check out the powerpoint noted above. The $300 million is DL's projected annual profit in operating the plant. They plan to account for this profit as a reduction to fuel cost. Should the plant run at a loss, the loss would increase fuel cost.

Delta is buying an oil refinery and betting that it can operate the plant profitably. The current operator can't run the plant profitably, that's why they were willing to close it rather than continue to book the losses.


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 152, posted (2 years 7 months 2 weeks 5 days 6 hours ago) and read 4802 times:

Quoting mcg (Reply 151):
They plan to account for this profit as a reduction to fuel cost. Should the plant run at a loss, the loss would increase fuel cost.

How would that happen if DL plans to use the fuel, themselves?



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 153, posted (2 years 7 months 2 weeks 5 days 4 hours ago) and read 4752 times:

The refinery sells the fuel to the airline at market price. Thus the refinery either makes or loses money on every transaction. And the airline can't consume all of the refinery's output as much of the output is products other than jet fuel (i.e. gasoline, diesel, fuel oil) and must be sold into the market. There are vague references to trading arrangements, but this only amounts to trading products based on market values.

Delta has decided to get into the oil refining business. It will absorb the economic impact of that decision. The fact that it operates a very large airline is irrelevant to these economics.


User currently offlinenomadd22 From United States of America, joined Feb 2008, 1903 posts, RR: 0
Reply 154, posted (2 years 7 months 2 weeks 5 days 2 hours ago) and read 4683 times:

Quoting mayor (Reply 150):
Perhaps you need to read it more carefully. In everything I've read that DL has said, it mentions nothing of $300mil a year in PROFITS........it mentions $300mil a year in SAVINGS. To me, it would only be profits if it was sold on the open market, not if DL was using the fuel for themselves.

This is the sort of nonsense I was referring to. The money Delta could save would be exactly the amount they'd make by putting the fuel on the market. It's not rocket science. It's second grade math. If they save a dollar by spending $4 to make a $5 gallon of gas, they lose that dollar by not selling it on the open market. There flat out is no savings. That's a word made up to sell this idiotic idea to stockholders and the public.

[Edited 2012-05-12 15:15:12]


Andy Goetsch
User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 155, posted (2 years 7 months 2 weeks 4 days 21 hours ago) and read 4598 times:

Quoting nomadd22 (Reply 154):

Let me try this, again. I'll type more slowly so you can understand. If DL pays less for jet fuel from their own refinery, how is that NOT a savings for them. The refinery, although a separate entity, is part of the operation and does for DL what they wanted....produce jet fuel for the company at a discount price.

Perhaps the reason it doesn't make sense is because it hasn't been tried, before and the idea seems foreign to you. It seems foreign to you because in your experience, the refinery had to turn a profit, but in this case, it doesn't......DL bought the refinery to produce Jet A for the parent company, not for the refinery to turn a profit, but to help DL turn a profit.




I personally think it's pretty innovative as do many analysts out there.



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlineTan Flyr From United States of America, joined Aug 2000, 1920 posts, RR: 0
Reply 156, posted (2 years 7 months 2 weeks 4 days 18 hours ago) and read 4517 times:

Didn't the State of PA throw a bunch of tax brreaks and "redevelopment funds" or some such term at this deal to keep the plant open?

The same conditions existed at a Valero plant in Delaware city, DE (originally a Mobil property built in 57) , and the state of Delaware threw a lot of taxpayer dollars into the deal to re-configure the plant for a new owner (PBF Partners) to utilize cheaper "sour" crudes the Saudi's offer at a discount compared to sweeter Brent grade stuff. Maybe DL has the same trick up their sleeve?

This seems to happen all the time..screw the business in place with hi taxes and burdensome regulations. Then when they pack it in and leave, give the candy store to the guys coming in...and around we go.


User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 157, posted (2 years 7 months 2 weeks 4 days 14 hours ago) and read 4450 times:

Quoting FlyASAGuy2005 (Reply 146):
Here we go...

Please point out to me where in this entire thread did I say that this purchase was fool-proof.

I wasn't trying to pick a fight with you, just pointing out that listing all the companies involved and noting they have been working on the plan for months is meaningless. There is no benefit to discounted fuel from a refinery you own and no reason to expect Delta can run the refinery any more profitably than other companies, so all that's left is some sort of benefit from complex hedging and trading.

The point is, JP Morgan clearly has no clue how to make a profit on such schemes.

[Edited 2012-05-13 03:19:14]

User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 158, posted (2 years 7 months 2 weeks 4 days 14 hours ago) and read 4452 times:

Quoting mayor (Reply 155):
Let me try this, again. I'll type more slowly so you can understand. If DL pays less for jet fuel from their own refinery, how is that NOT a savings for them.

nomadd22 is correct. If Delta pays less for jet fuel from their own refinery than that refinery could sell on the open market, then the refinery division's loss matches the airline division's gain.

If the airline could benefit in that manner, it could just buy Boeing and then sell itself airplanes for $1 apeice. It hasn't been tried because it won't work.


User currently offlinenomadd22 From United States of America, joined Feb 2008, 1903 posts, RR: 0
Reply 159, posted (2 years 7 months 2 weeks 4 days 12 hours ago) and read 4401 times:

Quoting twinotter (Reply 158):
nomadd22 is correct. If Delta pays less for jet fuel from their own refinery than that refinery could sell on the open market, then the refinery division's loss matches the airline division's gain.

If the airline could benefit in that manner, it could just buy Boeing and then sell itself airplanes for $1 apeice. It hasn't been tried because it won't work.



I hope you typed that slowly.



Andy Goetsch
User currently offlinepeanuts From Netherlands, joined Dec 2009, 1445 posts, RR: 4
Reply 160, posted (2 years 7 months 2 weeks 4 days 11 hours ago) and read 4379 times:

Quoting twinotter (Reply 158):
Quoting nomadd22 (Reply 159):

We get it.
Which is all fine and all.
I also gather that the terms vertical integration/vertical acquisition would be useless and considered mostly unproductive endeavors in your book. However, history has already proven for it to work in many cases.
You seem to focus on only one part of the equation. DL could possibly have more leverage with Trainer than we may think.



Question Conventional Wisdom. While not all commonly held beliefs are wrong…all should be questioned.
User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 161, posted (2 years 7 months 2 weeks 4 days 11 hours ago) and read 4344 times:

Quoting twinotter (Reply 158):
If Delta pays less for jet fuel from their own refinery than that refinery could sell on the open market, then the refinery division's loss matches the airline division's gain.

It is called vertical integration and it works so well it is often banned.

There are two ways the company benefits. 1) Cost of the final product is lower as profit cost is not compounded at each step 2) Demand stability enables production and logistic optimization.

As long as demand is high enough to consume all downstream production, or sell overage to non-competing entities, it is a win.

Quoting twinotter (Reply 158):
If the airline could benefit in that manner, it could just buy Boeing and then sell itself airplanes for $1 apeice. It hasn't been tried because it won't work.

You should read up on Boeing's and United's history.


User currently offlinemayor From United States of America, joined Mar 2008, 10674 posts, RR: 14
Reply 162, posted (2 years 7 months 2 weeks 4 days 10 hours ago) and read 4299 times:

Quoting twinotter (Reply 158):
nomadd22 is correct. If Delta pays less for jet fuel from their own refinery than that refinery could sell on the open market, then the refinery division's loss matches the airline division's gain.

Is it not possible for the refinery to sell at a discount and STILL make a profit?



"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
User currently offlinetwinotter From United States of America, joined Oct 2004, 208 posts, RR: 0
Reply 163, posted (2 years 7 months 2 weeks 4 days 9 hours ago) and read 4270 times:

Quoting mayor (Reply 162):
Is it not possible for the refinery to sell at a discount and STILL make a profit?

Sure, but greater profits at the airline divsion due to buying discounted fuel would be offset by lower profits at the refinery division due to selling discounted fuel. It is a zero-sum game.


User currently offlinenomadd22 From United States of America, joined Feb 2008, 1903 posts, RR: 0
Reply 164, posted (2 years 7 months 2 weeks 4 days 8 hours ago) and read 4231 times:

Quoting cmf (Reply 161):
It is called vertical integration and it works so well it is often banned.

In a way, this is the opposite of vertical integration. Since the refinery business will have almost nothing to do with the airline business it will be pretty much operating as an independant business. But it will have lost the oil company connections that helped balance the business between good and bad years. When the refinery is part of an oil company, the wild profit and loss swings tend to balance out by upstream making more during high crude price/low supply periods, where refineries tend to do badly, and low crude price/high supply periods where downstream does well.
And, as I said before, the liabilities they're taking on are enormous.
The $150 million doesn't mean much. If the owners had paid them $150 million to take it, the deal still would have been a bad one. Once you own a refinery you own the responsibility for keeping it up to snuff, which can cost billions, and decomissioning the plant when you get tired of dumping money into it or finding someone even dumber that you were to take it off your hands.

[Edited 2012-05-13 09:00:53]


Andy Goetsch
User currently offlinemcg From United States of America, joined Sep 2003, 828 posts, RR: 0
Reply 165, posted (2 years 7 months 2 weeks 4 days 5 hours ago) and read 4138 times:

Quoting mayor (Reply 162):
Is it not possible for the refinery to sell at a discount and STILL make a profit?

Remember, the refinery loses money now (you'll recall that Conoco's was prepared to close it), it can't sell products at market prices and make a profit. Offering the airline a discount simply increases the loss.

The question is what unique skills does Delta have to turn a money losing refinery into a profitable operation?

Btw, the winners in this deal are Conoco (they've sold a money losing albatross for $150 million) and all consumers of petroleum products on the east coast (keeping the refinery open will increase the supply of refined products, resulting on lower prices for gasoline, diesel and jet fuel and heating oil).


User currently offlineSSTeve From United States of America, joined Dec 2011, 738 posts, RR: 2
Reply 166, posted (2 years 7 months 2 weeks 4 days 5 hours ago) and read 4124 times:

Quoting mcg (Reply 165):
Remember, the refinery loses money now (you'll recall that Conoco's was prepared to close it), it can't sell products at market prices and make a profit. Offering the airline a discount simply increases the loss.

I do think Conoco had less freedom to make the investment in making more Jet-A, unless it secured an exclusivity contract with Delta. And delta has no reason to sign such a contract if it's just paying market price. Conoco also doesn't benefit if the market price declines. Since Delta now owns the place, it has the freedom to make the investment in turning it into a primarily Jet-A refinery. And if doing that depresses the market price of Jet-A, Delta doesn't suffer-- in fact, it benefits from it for the other half of its fuel needs. This $300 million figure may calculate the difference between choked jet-a supply and a high market price, and a lower market price coupled with breakeven operations at the refinery.

From Delta's perspective-- "Do we drop $300 million on permanently lowering the cost of Jet-A on the east coast?" Answer: "Yes, because we buy a helluva lot of it."