Delta Air Lines may partner with JP Morgan to help run the ConocoPhillips’ idled 185,000 barrel per day Trainer, Pa., refinery, if the carrier decides to purchase the plant. As per the proposal, the No. 2 U.S. air carrier would purchase the refinery for USD 100 million to USD 200 million, and JP Morgan’s commodities team would finance the refining process, including purchasing and shipping crude from overseas. Delta would then buy the jet fuel from JP Morgan at a wholesale rate, and the bank would sell the other products made by the refinery into the market.
In addition, at least two oil companies have partnered with Delta in a swaps arrangement in which they would give the airline jet fuel in exchange for some of the other fuel produced by the refinery.
Earlier this month, the board of Delta had met twice to discuss a potential bid in an unprecedented effort to hedge fuel costs for Delta, the world’s largest commercial buyer of jet fuel.
Trainer is one of three refineries in the Philadelphia area which have been pushed to the brink of closure by the high cost of crude oil feedstock and waning fuel demand. The plant makes a higher percentage of jet fuel than any other refinery on the East Coast, accounting for a third of the jet-kerosene capacity for the region.
Delta spent USD 12 billion on jet fuel last year, with its average pricing rising by 31% to USD 3.06 a gallon. Last year, the company’s aircraft consumed 3.86 billion gallons or just over 250,000 barrels per day (bpd) of jet fuel.
While many airlines use derivatives or even long-term physical deals in an effort to control their future jet fuel costs, buying a whole refinery would mark an extraordinary step to ease the pain of rising prices.