By ISABEL ORDONEZ, SUSAN CAREY and TOM FOWLER
Delta Air Lines, burdened by the soaring cost of jet fuel,
is seriously thinking of making some of its own by buying an
idled ConocoPhillips refinery near Philadelphia, people
familiar with the matter said.
Delta, the world's second-biggest airline by traffic, is in
talks with Conoco to acquire its Trainer, Pa., facility at a
cost of $100 million to $150 million, one person familiar with
the matter said.
Delta would hire an outside firm to run the refinery.
The move could help supply Delta's operations at La Guardia
airport and John F. Kennedy International Airport in New York,
and save it most of the so-called crack spread, or the
difference charged by a refinery between the cost of a barrel
of crude and a barrel of jet fuel.
In March, the spread between jet fuel and Brent crude, which
is the benchmark that determines the price of most crudes
delivered to the East Coast, was $12.85/bbl, according to
energy consultancy IHS Purvin & Gertz.
The Trainer refinery, idled since October, has a
processing capacity of 185,000 bpd, including 23,000 bpd of
aviation fuel, according to the US Energy Information
As refining jet fuel produces
byproducts such as gasoline and diesel fuel, Delta would swap
that output with a partner or partners, who would sell it.
In return, Delta would be able to lock in, through those
same partners, lower jet fuel rates at other airports where its
Delta's unorthodox bid underscores how the airline business
scrambles for innovative ways to lessen the impact of
skyrocketing crude oil prices.
Delta spent $11.7 billion last year buying fuel for itself
and its regional units - about 36% of its operating cost, and
$2.8 billion more than in 2010.
The airline has been the most vociferous industry critic of
the role that speculators allegedly play in inflating crude oil
But refining is also a challenging
business - as demonstrated by a wave of refinery closures and divestitures
in the US East Coast - as refiners pay a premium for crude
purchases and face declining demand for automotive fuel.
Some analysts were skeptical about Delta's potential
involvement in what is seen as a capital-intensive and
"We are a little uncomfortable about the company going
outside its core expertise," said Hunter Key, an analyst who
covers Delta for Wolfe Trahan & Co. "I can't recall any
other airline buying a refinery."
The talks have lasted for months, people familiar with the
A deal could come together as soon as the end of April, a
person said, but things are very fluid and the entire plan
could fall apart as there are other bidders for the facility
and there are numerous parties who would have to agree to work
with the airline.
The person said that acquiring the refinery isn't critical for
Delta's strategy, although it has been studying that
possibility for about six months.
ConocoPhillips declined to comment, but said that the
company is "continuing our efforts to find a buyer for the
The company, which originally had intended to sell the
refinery by the end of the first quarter, says the sale
continues until May.
On Wednesday, CNBC reported that JP Morgan Chase could
partner with Delta on the deal, in which the bank would buy
crude oil as well as pay for shipping costs and for conversion
into fuel and other products.
Under the plan, Delta then would buy the fuel from JP Morgan
at an effective wholesale price with the bank retaining the
right to sell other refinery products on the open
market, according to the CNBC report.
Dow Jones Newswires