Tuesday, May 1, 2012

Delta Air Lines buys a Refinery to stabilize fuel costs. Vertical Integration Forward.

I think this is a great idea for a company that spends so much money on one particular commodity, particularly a commodity with a market price tied to current events and investor speculation.  Why not just refine your own jet fuel?   Great idea Delta... This is how corporations and capitalism survive.  Eliminating waste and lowering costs. 

One question I will have to research is how they plan to get the refined fuel to their hub airports where its needed.  Maybe its just some sort of credit agreement maybe they actually ship the fuel by rail, pipeline, or tanker.   

Delta Air Lines said Monday that it will buy a refinery near Philadelphia in the hope of slicing $300 million a year from its jet fuel bill.
Delta said a subsidiary will buy the Trainer, Pa., refinery from Phillips 66, a refining company being spun off from ConocoPhillips. Delta is paying $150 million, including $30 million in job-creation assistance it expects to get from the state of Pennsylvania.
Delta estimates the deal will cut its fuel bill by $300 million a year.
Delta's Monroe Energy LLC subsidiary will spend $100 million to make changes to the refinery to maximize the production of jet fuel. Even though Delta will make as much jet fuel as possible at the refinery, the oil refining process still produces other products such as gasoline and diesel fuel. Delta said it will exchange those other products for jet fuel, so in effect the Trainer refinery would cover about 80 percent of its U.S. jet fuel needs.

I hope this starts a movement and more fuel users make long-term tie-up agreements with refineries to provide refining services for particular distillates or blends. It would improve the stability of the cost of refining oil.  It might even work eventually to help more people realize that to support an expanding economy and increased standard of living, gasoline should become more like a public commodity. 

Delta Air Lines just started something by buying a refinery.  Wait a couple years and watch what happens.. 

1 comment:

  1. This is the way to go for rising costs in commodities for Delta it will pass on down to the customers. I do hope African airlines can learn this soon and cut off the middleman.


    Peter Kiru Msangi
    EcoWise Ltd.