Delta Air to lose money on Trainer refinery in Q4, but future savings expected
By ALISON SIDER
Though Delta Air Lines expects to lose upward of $50 million on its new refinery in Trainer, Pa., this quarter, company executives said the airline isn't suffering from buyer's remorse.
Trainer is still expected to drive $300 million in annual jet-fuel savings for Delta next year, chief financial officer Paul Jacobson said Wednesday during a presentation at the company's investor day.
He added that the refinery could save the company even more money once the refinery begins accepting relatively inexpensive crude from North Dakota's Bakken formation in the first half of next year.
The airline attributes the loss during the quarter to Superstorm Sandy, which battered the US East Coast in September. The storm hit just after Delta restarted its 175,000 bpd refinery after spending the summer on maintenance work to maximize jet-fuel production.
The storm didn't damage Trainer, but it did take out much of the pipeline and distribution network that allows it to operate.
"We couldn't get the crude into the plant, we couldn't get the finished product out of the plant," said Delta president Ed Bastian.
The company is still confident that its $180 million bet on the refinery, which it purchased in May, will pay off.
"The bump in the road from Sandy has been significant, but it's also temporary," Mr. Jacobson said.
Delta subsidiary Monroe Energy spent $180 million to buy the Trainer refinery in May and spent the summer making upgrades, only to be hit by Superstorm Sandy almost immediately after restarting the refinery in September.
But Mr. Jacobson said owning the refinery has a "halo effect" beyond just the direct costs and savings, giving Delta leverage in negotiations with fuel vendors who don't want to be cut out of the deal.
"An airline is the one that has always had zero leverage in the supply chain. But we now have two refiners that were competing to supply us with jet fuel," Mr. Jacobson said. Delta booked three-year contracts with those vendors to achieve $15 million in savings in a hub city Mr. Jacobson declined to name.
Mr. Jacobson said he expects offloading capacity to be built so Trainer can accept crude oil from the Bakken formation in North Dakota by rail by the end of 2013, with some volumes of Bakken being delivered as early as the first half the of the year.
Mr. Jacobson said running Bakken crude at the refinery instead of the pricier West African crude it runs now will save $8-to-$10/bbl in crude-oil costs.
Brent crude on the ICE Futures exchange, the benchmark for West African crude, was at $109.65/bbl Wednesday. Bakken crude generally trades at a discount to West Texas Intermediate, which ended Wednesday at $86.77/bbl for January delivery.
"By increasing the volumes of Bakken, we'll be able to drive significant benefits over and above that $300 million," he said.
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