Delta Air Lines's possible bid to acquire an east-coast refinery would cause a loss in revenue because the company has no industry experience and only has interest in jet-fuel production, market traders and engineers said last Wednesday.
"The big question is why Delta, an airline, thinks they can make jet fuel more efficiently than a refiner," said a refinery feedstocks trader and former refinery engineer.
He said jet fuel from the refinery will still be subject to market prices, and therefore it would not be any cheaper than when ConocoPhillips's refinery was in business.
Last week, business news broadcaster CNBC reported that Delta's board of directors had met twice to discuss a potential bid for ConocoPhillips's 185,000 bbl/day Trainer refinery in Pennsylvania, in order to hedge the price for jet fuel.
A jet fuel trader said Delta was teaming up with JP Morgan for the purchase of the refinery.
The majority of jet fuel refined on the east coast has typically supplied the New York and Philadelphia metropolitan airports.
"Delta wants jet fuel only, that's 14 percent of [refinery] yields," said a market broker.
Accordingly, 86 percent of product would be left for Delta to sell in the market.
In addition, Delta would still be forced to buy North Sea and West African crude, which is pricier than crude grades used in the midwest and U.S. Gulf.
Refineries are unable to produce solely diesel fuel by running crude oil, the former engineer said. The refinery would make unfinished, less profitable fuels as well if the entire refinery were not operated.
Delta and ConocoPhillips declined to comment on the speculation about the deal.
JP Morgan did not immediately respond to inquiries.
Copyright 2012 Reed Business Information LimitedAll Rights Reserved
