Hurricane Sandy dealt a $50 million blow to Delta Air Lines' operations, but the storm also threw a wrench in Delta’s quest to begin jet fuel production at its new refinery.
The carrier’s Trainer refinery, located south of Philadelphia, was expected to open in the fourth quarter, but the impact of the storm has pushed back the start date. While it has been producing jet fuel since late September, the full restart of the refinery, which has been shuttered for a year, is still a few weeks away.
Delta officials said this turn of events has cost the airline $50 to $60 million. Once the refinery is up and running at top capacity, the refinery will produce 80 percent of the carrier’s fuel needs in the United States, saving Delta $300 million per year. By the end of next year, company officials also expect to complete another cost-saving investment. Adding increased handling operations at the facility would allow the use of cheaper Bakken crude shipped into the refinery by rail. Cost savings, officials estimate, would be $8 to $10 per barrel.
“Not only did Sandy impact the operations… but it also delayed the startup of the Trainer refinery. It caused a pretty significant delay in the anticipated benefit,” Delta President Ed Bastian said during the airline’s investor presentation. “Fundamentally, the Trainer facility is doing great, and we have continued great performance there, and the infrastructure is back now.”
Last April, Delta became the first airline to own an oil refinery, paving a path forward in an industry that has been perpetually crunched by fuel costs. Before the storm hit, the refinery was expected to start producing jet fuel by the fourth quarter of 2012. Monroe LLC, a subsidiary of Delta, purchased the refinery for $180 million from Phillips 66 in June. A state grant covered $30 million of the purchase price. Since the deal, Delta officials have been working to convert the facility from slate to jet fuel production plant at an estimated cost of $100 million.
In a press release at the time, Delta Chief Executive Officer Richard Anderson lauded the move. "Acquiring the Trainer refinery is an innovative approach to managing our largest expense," he said. "This modest investment, the equivalent of the list price of a new wide-body 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."
Before the storm hit, the facility had been test-running up to 175,000 barrels per day, Delta’s production goal.
“That shows the potential of the asset in what we’ve been able to do. The bump in the road from Hurricane Sandy has been significant, but it’s also temporary,” Paul Jacobson, Delta’s chief financial officer, said during the presentation. “We remain very confident in the ability of the refinery to drive our $300 million annual savings target.” - Jon Ross