Delta Airlines Oil Refining Company: Vertical Expansion of Industries Now Include Oil Refining

By Jay Colingham MPH, LABB Research Associate
 

Refining oil looks like a frugal way for some companies to save money due to the uncertainty surrounding future fuel prices and a pessimistic outlook for costs to the transportation and freight industries.  Last week, Delta Airlines announced that it will be purchasing a retired refinery in Pennsylvania as a way to reduce fuel prices to several of the major airports it services in the North East1.

The Trainer Refinery will be purchased for $150 million and overhauled and renovated for $100 million1.  Regulations on new refinery construction have limited building such facilities since 1976 when Marathon Oil Company created the last grassroots refinery in Garyville, LA2.  Delta expects to see major annual benefits with up to $300 million in savings on fuel prices.  Many have compared this to the cost of most commercial airliners which range from $59-389 million depending on the plane3.

Comparing cost to benefit, the airline stands to recuperate costs in 12 months and possibly gain in that time period as well1.  With a little help from Pennsylvania, Delta will utilize $30 million of state funds for job growth in the project and facility.  How it plans to staff and run the refinery are not currently known.

From the perspective of the Louisiana Bucket Brigade, this can be a double edge sword.  We hope that a smaller company like Delta will strictly adhere to regulations and maintain a better maintenance and risk management plan because it must hire consultants and outsource the work to agencies that could be held responsible for oversights.  The New York Times reports that1, “To assuage concerns that an airline has never owned or run a refinery, Delta said the plant would be led by executives with refining experience, including Jeffrey Warmann4, who ran Murphy Oil’s refinery in Meraux, La.”

As a reminder, Murphy Oil has one of greatest records in polluting Louisiana and during Jeffrey’s term had at least 12 reported accidents with two major emission of SO2 in late 20105.  Deepwater Horizon has been evidence that the hope for consultant oversight is often dashed by companies willing to cut a corner or two to provide cost savings and make accidents inevitable.

This is the first time in recent history that I could find a company outside the energy industry that purchased a major oil refinery for use as a source for direct commercial use.  Let us hope that they set a new standard in conducting oil refining and at the same time hope that they do not set a precedent for inexperienced companies to arrogantly do the same with disastrous results around the country.

  1. Mouawad, J. , Delta Buys Refinery to Get Control of Fuel Costs. New York Times. Business Day April 30, 2012.  http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html
  2. Marathon Petroleum Corporation. Operations Refining Facilities. Accessed may 2, 2012. http://www.marathonpetroleum.com/Operations/Refining_and_Marketing/Refining/Garyville_Louisiana/
  3. Flasseur, V and T. Hepher. Boeing and Airbus Price Calculator. Reuters. January 18th, 2012.  Accessed on May 2, 2012.  http://graphics.thomsonreuters.com/10/PlaneCalc.html
  4. Jeffrey Warmann, Former Refinery Manager at Murphy Oil. Job History. Accessed May 2nd, 2012.  http://www.linkedin.com/pub/jeffrey-warmann/a/641/196
  5. Louisiana Bucket Brigade. Murphy Oil. Refinery Accident Database. Accessed May 2nd, 2012. http://farm.ewg.org/sites/labb/refinery.php?refinery=BB013
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