Energy
2:54 pm
Tue May 1, 2012

With Purchase, Delta May Revive Ailing Pa. Refinery

Originally published on Wed May 9, 2012 8:44 am

Transcript

ROBERT SIEGEL, HOST:

Delta Airlines has decided to do something about high gas prices. The company is buying a refinery from ConocoPhillips for the bargain basement price of $150 million.

WHYY's Emma Jacobs reports that, with this purchase, Delta becomes the first major U.S. airline to get into the business of producing its own jet fuel.

EMMA JACOBS, BYLINE: An unlikely knight in shining armor has appeared in the refinery town of Trainer, Pennsylvania: Delta Airlines. Since energy giant ConocoPhillips started the plant here over the winter, it's been quiet. Former plant employee, Michael Hubert(ph), points out you can't hear steam coming off the towers across the road.

MICHAEL HUBERT: Lights at night. The place is just, you know, dark as anything. Ready to get there - get in there and turn them back on, get the place running.

JACOBS: Delta plans to get the facility back online and producing jet fuel for its fleet by Labor Day.

EDWARD BASTIAN: Some may say this is - yeah, go ahead.

(SOUNDBITE OF APPLAUSE)

JACOBS: Delta's president, Ed Bastian, delivered the news in the refinery's parking lot this morning with the governor, both Pennsylvania senators and most of the area's congressional delegation.

BASTIAN: Some may say this is an unconventional move. We consider this an innovative move, an out-of-the-box idea and it's going to be in the best interest of our business, our community and our shareholders.

JACOBS: The airline industry has talked about fuel refining for years, but Delta is the first carrier to bite the bullet. Delta is one of the world's largest passenger airlines. It guzzles more than three and a half billion gallons of jet fuel every year. That's a fuel bill of more than $11 billion. That means if it can shave just cents off its cost per gallon, the airline will save hundreds of millions of dollars.

But Delta may be in for a turbulent flight. Industry experts expressed a lot of skepticism at the first reports of the carrier's interest in the refinery.

JOHN ARMBRUST: Quite frankly, as everyone knows, the airline business is tough enough as it is.

JACOBS: So is refining, points out aviation analyst John Armbrust. In the end, this whole plan only works if Delta can get more out of the refinery than it costs them to run it.

ARMBRUST: If it works, they're going to be the smartest kid on the block. If it doesn't, people are going to say, see? You know, that was the dumbest thing they could have ever done.

JACOBS: ConocoPhillips, a veteran refinery, decided to sell the aging refinery after several years of losses. Expensive crude prices have combined with falling U.S. demand to make the volatile refining business tougher than ever, especially for East Coast refineries that get crude shipped in from overseas.

There was another big announcement in Pennsylvania yesterday involving refineries. The sale of Pennsylvania-based Sunoco to a Texas energy transportation firm marked the end of Sunoco's departure from the refining business altogether.

But Delta's Ed Bastian defends his company's deal. He says airlines have never paid as much as they pay for fuel today.

BASTIAN: We've got great confidence in the management team that we've brought forward and we believe in partnering with Conoco as well as Phillips 66 and BP. We've got a long term answer.

JACOBS: Delta says, all told, the deal will supply over 75 percent of its fuel needs in the U.S. Bastian says he hopes to save enough to keep ticket prices steady. For NPR News, I'm Emma Jacobs in Philadelphia. Transcript provided by NPR, Copyright National Public Radio.