Subscribe to our free, weekly email newsletter!


Delta hedges its bet against spike in fuel prices

As part of the transaction, Monroe will enter into strategic sourcing and marketing agreements with BP and Phillips 66
By Patrick Burnson, Executive Editor
May 02, 2012

Delta Air Lines wholly-owned subsidiary, Monroe Energy LLC, has reached agreement with Phillips 66 to acquire the Trainer refinery complex south of Philadelphia.

As part of the transaction, Monroe will enter into strategic sourcing and marketing agreements with BP and Phillips 66.  The acquisition includes pipelines and transportation assets that will provide access to the delivery network for jet fuel reaching Delta’s operations throughout the Northeast, including its hubs at LaGuardia and JFK.

“Acquiring the Trainer refinery is an innovative approach to managing our largest expense,” said Richard Anderson, Delta’s chief executive officer. “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.  This strategy is aligned with the moves we have made to build a stronger airline for our shareholders, employees and customers.”

Derik Andreoli, Ph.D.c. Senior Analyst, with Mercator International LLC, and LM’s energy columnist, noted that Delta will also be a bit sheltered from a price spike should an actual shortage of middle distillates emerge.

“A bad hurricane season could bring on just such a panic. At any rate, Delta will still be paying for oil, but if the price of oil rises more slowly than middle distillates, Delta will make out,” he said. “This is not all that different than playing the spread on the futures market. In both cases Delta benefits from an increase in the price differential between middle distillates and crude.”

After receipt of $30 million in state government assistance for job creation and infrastructure improvement from the Commonwealth of Pennsylvania, Monroe’s investment to acquire the refinery will be $150 million, and Monroe will spend $100 million to convert the existing infrastructure to maximize jet fuel production.  Production at the refinery combined with multi-year agreements to exchange gasoline, diesel, and other refined products from the refinery for jet fuel will provide 80 percent of Delta’s jet fuel needs in the United States.

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

While the economy has seen more than its fair share of ups and downs in recent years, 2014 is different in that it could be the best year from an economic output perspective in the last several years. That outlook was offered up by Rosalyn Wilson, senior business analyst at Parsons, and author of the Council of Supply Chain Management Professionals (CSCMP) Annual State of Logistics Report at last week’s CSCMP Annual Conference in San Antonio.

Matching last week, the average price per gallon of diesel gasoline dropped 2.3 cents, bringing the average price per gallon to $3.755 per gallon, according to the Department of Energy’s Energy Information Administration (EIA).

A number of key topics impacting the freight transportation and logistics marketplace were front and center at a panel at the Council of Supply Chain Management Annual Conference in San Antonio last week.

The relationships between third-party logistics (3PL) service providers and shippers are seeing ongoing developments due in large part to the continuing emergence and sophistication of omni-channel retailing. That was one of the key findings of The 19th Annual Third-Party Logistics Study, which was released by consultancy Capgemini Group, Penn State University, and Korn/Ferry International, a global talent advisory firm.

Optimism in the form of increasing profits was a key takeaway in the Annual Survey of Third-Party Logistics (3PL) CEOs, released earlier this week at the Council of Supply Chain Management Professionals (CSCMP) Annual Conference in San Antonio.

Article Topics

News · Air Freight · Air Cargo · Fuel · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA