Discussion:
Delta Airlines gets into the refinery business
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John R. Levine
2012-05-06 04:32:07 UTC
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News reports say that Delta is buying an unused refinery near Philadelphia.
Their main goal is to make jet fuel, but it'll also make gasoline and other
products which they will swap with other refiners for jet fuel in other parts
of the US.

This deal seems to make sense, partly because they got a good price on the
refinery and a $30M job creation grant from the state, but the obvious question
is why, if this is such a good a idea, has no airline done it before?

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html
http://www.nytimes.com/2012/04/05/business/deltas-puzzling-interest-in-buying-an-oil-refinery.html

R's,
John
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matt weber
2012-05-06 18:23:18 UTC
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Post by John R. Levine
News reports say that Delta is buying an unused refinery near Philadelphia.
Their main goal is to make jet fuel, but it'll also make gasoline and other
products which they will swap with other refiners for jet fuel in other parts
of the US.
This deal seems to make sense, partly because they got a good price on the
refinery and a $30M job creation grant from the state, but the obvious question
is why, if this is such a good a idea, has no airline done it before?
http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html
http://www.nytimes.com/2012/04/05/business/deltas-puzzling-interest-in-buying-an-oil-refinery.html
R's,
John
I think the obvious answer is that such a transaction hasn't had the
financial attractiveness it has today. Oil Company profits are at
record levels. Admittedly that is largely due to the price of crude
oil, but there is a significant part that is due to record 'spread',
or so called 'crack spread', between the value of a barrel of Crude
oil, and the value of the refined products refined from that barrel of
crude oil.

If the 'crack spread' is small, then there is probably no cost
advantage in refining your own fuel. If it is very large, there are
obvious cost advantages.
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JF Mezei
2012-05-06 18:59:14 UTC
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Post by John R. Levine
This deal seems to make sense, partly because they got a good price on the
refinery and a $30M job creation grant from the state, but the obvious question
is why, if this is such a good a idea, has no airline done it before?
I think that there is now a realisation that oil companies won't
increase refined production capacity because they like to keep gazoline
prices high.

Refining your own means that you can escape from the artificially high
refined product prices for your own services, and sell any surplus at
those "market" prices.


This could give Delta a big competitive advantage when you consider the
large percentage of total costs that fuel represents.
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