Delta to increase Trainer jet fuel production in Q1

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Delta Air Lines plans to increase jet fuel production at its Trainer refinery to 40,000 barrels per day by the end of the first quarter, when it brings its latest modifications to the plant online.

The increase will be possible with modifications to the second crude tower that will occur during the first quarter, says Paul Jacobson, chief financial officer of the Atlanta-based carrier, during an interview with Airline Business. This will follow on-going “max jet” modifications to the first crude tower that will be complete in January.

The Pennsylvania refinery produces about 30,000 barrels of jet fuel per day currently, which is a little over 17% of the average 175,000 barrels per day of total output during the third quarter. The plant has a capacity of about 185,000 barrels per day.

Jacobson says that the 32% jet fuel yield that Delta outlined when it purchased Trainer in June 2012, is “going to take longer to do” but says that they still anticipate achieving those production levels.

Monroe Energy, the wholly-owned Delta subsidiary that owns Trainer, reported its first profit of $3 million in the third quarter, following small losses in the previous quarters.

“I think we’ve had a couple of hiccups, if you will, in the first year,” says Jacobson on the plant’s initial losses, citing the impact of hurricane Sandy in October 2012, the shut down of a unit in early 2013 and crude supply issues.

“I think there’s been lots of learning opportunities there,” he says. “But when you look at it overall one of the key reasons that the profitability has fallen short of expectations is that jet crack [spreads] have come down, which is ultimately the reason for doing it.”

Jacobson expects that as crack spreads rise, likely to occur as the price of oil falls, Delta stands to benefit more from Trainer.

“We’re going to be the best positioned in the industry to manage that risk,” he says.

The jet crack spread is the difference between the price of a barrel of oil and that of jet fuel.

Delta had the lowest jet fuel expenses among US carriers in the third quarter, paying an average of $2.97 per gallon for fuel compared to $3.24 at Alaska Airlines, $3.04 at American Airlines, $3.01 at US Airways and $3.12 at United Airlines.

The carrier has also been able to leverage production at Trainer for savings on supply contracts outside the New York harbour. Jacobson said in December 2012 that Delta saved $15 million annually on a three-year supply contract at its Minneapolis-St. Paul International airport hub as a “halo effect” of the refinery.

He says that this impact continues today.

Delta continues to increase its supply of US crude oil to Trainer. Jacobson says they are focused on increasing supply from domestic oil sources, including the Bakken play in North Dakota and the Eagle Ford play in Texas, and anticipate making a “meaningful dent” in achieving a goal of 50% US-sourced supply in 2014.

“I think the advent of domestic crude is a huge boom for the USA,” he says. “It’s clear that we [Delta] need to get regular, sustained access and supply out of domestic sources.”

Rail facilities at Trainer, which were discussed last year, are off the table for now. Jacobson says that Delta can take advantage of “unmet” capacity in new rail capacity on the east coast without investing in its own facilities.

“There are options for us to build our own facility but right now I don’t think we need it,” he says.

Delta is investing about $50 million in capital expenditures at Trainer annually.