Delta Air Lines Inc. (DAL) plans to become a seller in the U.S. jet fuel market and push prices lower after acquiring a refinery in Pennsylvania, the airline’s Chief Executive Officer Richard Anderson said today.
The company’s Monroe Energy LLC subsidiary purchased the 185,000-barrel-a-day Trainer plant near Philadelphia for $150 million on April 30. The world’s second-biggest airline spent about $11.8 billion last year on fuel, accounting for 36 percent of operating expenses, according to Delta’s annual report.
“We’re probably the largest private purchaser of jet fuel in the United States but we don’t get to participate in the pricing function,” Anderson told reporters after the Delta’s annual meeting in New York. “It’s our intention to begin to participate in the pricing function and put a lot of downward pressure on the cost of refining a barrel of jet fuel.”
The Trainer refinery will produce 52,000 barrels a day of jet fuel, according to slides published in an April 30 8-K filing by the company. Delta will exchange all other products with BP Plc (BP/) and Phillips 66 (PSX) for an additional 120,000 barrels a day of jet fuel in other locations around the country. The airline consumes about 210,000 barrels a day in the U.S.
“What this does is gives us the opportunity to participate in the Platts function for setting the price of jet fuel,” Anderson said.
Price assessments by Platts, the energy information division of McGraw-Hill Cos., are used as a benchmark for fuel delivery contracts. Bloomberg LP, the parent of Bloomberg News, competes with Platts in providing energy-markets news and information.
Delta said it will spend $100 million to convert the refinery to increase production of jet fuel to 32 percent from 14 percent. Most of the gain in jet will come at the expense of gasoline output, which will drop to 43 percent from 52 percent.
“Keeping this refinery online will increase supplies in the market and push down prices,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. “This refinery is one of many so it’s unlikely that it’ll have a major effect.”
The price for jet fuel in New York Harbor has averaged $17.14 a barrel (41 cents a gallon) over Brent crude this year, according to data compiled by Bloomberg.
A one-cent difference in the jet fuel price equals $40 million for Delta on an annual basis, Eric Torbenson, a spokesman for the company, said in a telephone interview.
ConocoPhillips (COP) shut the Trainer refinery Sept. 30 and was planning to permanently shut the plant if it didn’t find a buyer within six months. The Houston-based company spun off its refining, pipeline and chemical assets into Phillips 66, which began trading in New York on May 1.
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