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

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

The United States Environmental Protection Agency (EPA) has awarded the Port of Oakland $277,885 to upgrade cargo-handling equipment and reduce exhaust emissions on the waterfront.

Entitled the Positive Train Control Enforcement and Implementation Act of 2015, the bill would extend the 2015 PTC implementation deadline to the end of 2018.

Carloads were down 5.4 percent annually to 285,856, and intermodal was up 2.1 percent to 280,844.

Did you know that there is a correlation between logistics solutions and customer loyalty? 70% of customers are willing to spend more money for good customer service which means you must have on-time delivery, proficient inventory management and a strong logistics strategy.

While coffee is one of the first things on the minds of many people early in the morning, it was especially prevalent this week, when Starbucks Chairman and CEO Howard Schultz gave the keynote address at this week’s Council of Supply Chain Management Professionals (CSCMP) Annual Conference in San Diego.

Article Topics

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


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

© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA