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Airline Delta to buy US Trainer refinery in Pennsylvania

The airline plans to restart the shut down plant in early September

In a move giving hope to firms with refineries for sale – but criticised by some as risky – the US airline, Delta, has agreed to buy the shut-down Trainer, Pennsylvania, refinery from Phillips 66, the refining and marketing company spun-off from ConocoPhillips on 1 May. Delta plans to re-start the 185,000 barrels a day (b/d) facility, located on the Delaware River, near Philadelphia, in early September.

Delta’s wholly-owned Monroe Energy will pay $180 million for the refinery, of which the Pennsylvania state government will contribute $30m towards job-creation. Delta says it will spend $100m on unspecified modifications to maximise the refinery’s jet-fuel production. Under agreements with Phillips 66 and BP, Trainer’s output of gasoline and other products will be swapped for jet-fuel for delivery elsewhere in the US, while BP will supply crude to the facility.

Delta says the acquisition and swap agreements will cover 80% of its jet-fuel requirements in the US. The company’s chief executive, Richard Anderson, described the purchase as “an innovative approach to managing our largest expense”.

“This modest investment, the equivalent of the list price of a new widebody aircraft, will allow Delta to reduce its fuel expense by $300 million annually and ensure jet-fuel availability in the northeast,” he said.

According to Delta’s annual report, the company – which operates 775 aircraft – used 3.856 billion US gallons (USg) of jet-fuel in 2011, equivalent to 251,533 b/d. The cost was $11.783bn, or 36% of the airline’s total operating costs. The average cost of Delta’s jet-fuel in 2011 was $3.06/USg, up by 31% from the $2.33/USg average of 2010. In 2009 the average cost was $2.15/USg, while in 2008 it was $3.16/USg.

With Trainer having been idled at the end of September and shut-down in February when no buyer had emerged, Delta was able to acquire it for a low price. But industry sources say the company will be exposed to low refining margins, while the expected $300 million a year jet-fuel saving is small compared to its total fuel bill.

Lacking the facilities to process lower-cost crudes, and without pipeline access to US domestic sources, Trainer has to process costly light, low-sulphur crudes, imported mostly from Nigeria, elsewhere in west Africa, and Canada. ConocoPhillips claimed an output of 65,000 b/d of distillates (including jet-fuel) and 105,000 b/d of gasoline. The facility has a catalytic cracker and a relatively small hydrocracker, giving a Nelson complexity rating of 8.0. Jet-fuel can be piped to New York’s LaGuardia and JFK airports.

Close to Trainer on the bank of the Delaware River is Sunoco’s Marcus Hook refinery, idled since December after Sunoco – in the course of being acquired by pipeline company Energy Transfer Partners – failed to find a buyer. But there are hopes for Sunoco’s other refinery nearby, Philadelphia, which had been due to be idled this summer. In April, Sunoco said it was in talks with the Carlyle group which could lead to the 330,000 b/d facility being transferred to a joint venture between the two companies. Carlyle would hold a majority interest in the venture.

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