Delta Air Lines, which took the bold step of bidding for a refinery to keep a handle on fuel costs, said on Monday it would not be selling jet fuel on the open market once the deal closes.
Delta subsidiary Monroe Energy will spend about USD$100 million to convert the 185,000 barrel-per-day refinery in Trainer, Pennsylvania, to increase its jet fuel output to 52,000 bpd or about 32 percent of output, cutting back production.
“We will produce and sell the jet fuel to ourselves,” said Eric Torbenson, a spokesman for the airline.
Monroe Energy, formed to own the refinery, will sell the fuel back to Delta, Torbenson said, clarifying a media report that quoted Delta’s chief executive saying that Delta plans to become a seller in the US fuel market and push prices lower.
Torbenson said Monroe Energy was legally prohibited from selling jet fuel on the open market. Monroe signed contract and offtake deals for buying crude and selling products with BP and Phillips.
Delta spent almost USD$12 billion for fuel last year, the largest expenditure on its balance sheet.
Last year, Delta paid an average USD$3.06 a gallon, up nearly a third from 2010. For 2012, the US Department of Energy forecasts the cost of jet fuel to average USD$3.35 a gallon.
A one cent variation in the cost of jet fuel can make a big difference to the airline.
“One cent means a USD$40 million difference annually,” Torbenson said.