Delta seeks oil connection

JEP

Malko In Charge
Staff member
http://www.startribune.com/business/168860776.html

Delta Air Lines is exploring a plan it hopes will enable it to get 80 percent of its jet fuel domestically by tapping into the oil boom in North Dakota.
The strategy includes buying crude oil drawn from North Dakota's Bakken oil fields at prices at or below what Delta currently pays in the world market and shipping it by train to a refinery Delta purchased in Pennsylvania earlier this year.

"Ownership of the refinery is enabling us to explore alternative sourcing of crude," Delta President Ed Bastian told the Deutsche Bank 2012 Aviation and Transportation Conference on Thursday.
Bastian said it was "too early to draw any conclusions," but the savings could help control the airline industry's biggest cost in a novel way.


"Fuel costs are enormous," Darryl Jenkins, chairman of the American Aviation Institute, said. "Of all the [cost-control strategies] I've seen in the last few years, this is the most interesting one."
Jenkins called the plan innovative, if unproven. "These guys are out in front of the rest of the industry," he said.


Like Bastian, Jenkins said it is too soon to know if Delta's domestic supply plan can lead to significant savings and set a business model for the airline industry. Bastian said Delta is studying the price spread between Brent crude oil it now purchases and West Texas Intermediate crude it would get from North Dakota. Brent crude currently costs $18 more per barrel than West Texas Intermediate crude.

The airline is also talking to railroads about the costs of shipping the crude oil to the East Coast. Bastian promised more specifics at an investors meeting in December. But, he added, "it's a big opportunity. It's huge."

What Delta hopes to do is "absolutely" more viable than moving to jet biofuel to curb costs, said Stanford Seto, chairman of the subcommittee on aviation fuels of ASTM International, a group that sets fuel standards.

"The cost per gallon [of jet biofuel] now is four to six times greater than petroleum," Seto said.
Delta's purchase of a refinery near Philadelphia last year "took the whole industry by surprise," Seto said. Matching the recently acquired plant's refining capability to the quality of a North Dakota product is critical, Seto said. So is finding a use for oil that can't be processed into jet fuel.
"Jet fuel is made out of a small fraction of a barrel of oil," Seto explained. "If you don't turn the rest of the barrel into a product that can be sold, you lose profit."


Delta plans to swap gasoline, diesel and other petroleum products made at its refinery with oil companies in exchange for more jet fuel. The system, said Delta spokesman Trebor Banstetter, is designed to provide 80 percent of the airline's fuel needs in the United States.

Only time will tell if practice can meet theory. "It's speculation," Seto said. "They think it will work. I don't know if anyone else does."
Jim Spencer • 202-383-6123


Edit: Here, lemme help. DT
 

ComplexHiAv8r

Well-Known Member
I think this is new about the amount of oil from the Dakota's. Funny they will use trains, guess it's cheaper to ship by rail then by air. Don't tell the Cargo side of ops that! :rolleyes:
 

mikecweb

Third Generation Arizonan
I think this is new about the amount of oil from the Dakota's. Funny they will use trains, guess it's cheaper to ship by rail then by air. Don't tell the Cargo side of ops that! :rolleyes:
It's cheaper to ship by rail than most other forms of transportation.
 

Xcaliber

El Chupacabra
I still find it somewhat amusing that airlines complain about the cost of fuel, despite the fact that they generally pay less than even 85 octane car gas. Don't get me wrong, I understand the economics of the situation, but when I go to work and see the price the airline is paying vs. what I'm paying for my car, it kind of bugs me. Also, knowing the the Citation pulling from the same tank, but on the other side of the runway is paying double the price (and 6 times the tax) kind of annoys me too. Oh well, I'm just a peon...
 

Hacker15e

Dunning–Kruger Observer
I, for one, think it's brilliant that Delta is thinking so far outside the container. IMHO these guys are going to be seen as brilliant as SWA was for their hedging strategy in the 80s before anyone else was doing it.
 

SeanD

Well-Known Member
I, for one, think it's brilliant that Delta is thinking so far outside the container. IMHO these guys are going to be seen as brilliant as SWA was for their hedging strategy in the 80s before anyone else was doing it.
I agree, it is a great strategy. Doesnt SWA's hedging deal end this year?
 

Cptnchia

Dissatisfied Customer
I think this is new about the amount of oil from the Dakota's. Funny they will use trains, guess it's cheaper to ship by rail then by air. Don't tell the Cargo side of ops that! :rolleyes:

Oy, my head hurts! First, not sure what cargo side of Ops your thinking about. Everyone knows there's no money in cargo*. Second, not sure if you're kidding or not about shipping crude by air.



*Actual quote from management.
 

dasleben

That's just, like, your opinion, man
It's cheaper to ship by rail than most other forms of transportation.
Also much, much more efficient. How much crude can an airplane haul? Answer: Not nearly as much as a train. :)

Maybe ProudPilot can pipe up and tell us if this is accurate, but I pulled this off teh interwebz:

"Traditionally crude oil is handled in 23,000 gal cars, but with new higher weight limits, that may be changing. 23,000/42 = 547.62 barrels per car. A 100 car train = 54,762 barrels, or almost twice the daily amount of 30,000 stated in the article. 30,000/547.62 = ~55 cars a day. The Alaskan Oil Pipeline moves about 2,003,000 b/d (~3658 cars per day) and supertankers carry 2~3 million barrels (3650~5480 cars)."

Unless we get multiple A380s running all day everyday, I think trains might be better. :)
 

ComplexHiAv8r

Well-Known Member
Cptnchia said:
Oy, my head hurts! First, not sure what cargo side of Ops your thinking about. Everyone knows there's no money in cargo*. Second, not sure if you're kidding or not about shipping crude by air.

*Actual quote from management.
But I saw it on Ice Pilots once!!! 8). I think they used the Conie for it.
 

ProudPilot

Aeronautics Geek
Also much, much more efficient. How much crude can an airplane haul? Answer: Not nearly as much as a train. :)

Maybe ProudPilot can pipe up and tell us if this is accurate, but I pulled this off teh interwebz:

"Traditionally crude oil is handled in 23,000 gal cars, but with new higher weight limits, that may be changing. 23,000/42 = 547.62 barrels per car. A 100 car train = 54,762 barrels, or almost twice the daily amount of 30,000 stated in the article. 30,000/547.62 = ~55 cars a day. The Alaskan Oil Pipeline moves about 2,003,000 b/d (~3658 cars per day) and supertankers carry 2~3 million barrels (3650~5480 cars)."

Unless we get multiple A380s running all day everyday, I think trains might be better. :)
Yeah, train efficiency is extremely high, only trumped by pipeline or sailboats. Huge ships can be hit or miss on efficiency vs rail depending on route, weather, and terrain that a train would have to go over. 500-1000 miles per gallon per ton is a good estimate of trains. Boats can be from 250 - few thousand depending on currents and route. Obviously over land trains win and over sea boats win. Pipelines can boost the oil only at a few places and let gravity do the rest. There you can get 1000 miles per gallon per 10 or 20 tons... if done right.

Airplanes don't come near that. To give you an idea of the oil moving, there is a yard in North Dakota that is a small yard. They do 110 car trains of crude oil 10 times a day. Each train will do about 3000 gallons of fuel from it's location to Northtown, MN. That's 14740 tons of crude oil. My math ends up with around 2500 miles per gallon per ton, but honestly I'm not sure how that math works out. If you can figure out how to do it with airplanes though, you'll make a fortune.
 

ProudPilot

Aeronautics Geek
But I saw it on Ice Pilots once!!! 8). I think they used the Conie for it.
The problem there is that is the only way to get from point A to B at that time of year. Trucks are BY FAR more efficient. However, diamonds and silver is a 24/7 operation with really horrific chemicals that need to be recycled and kept at a specific temp. If fuel is getting low, you can spend a lot of money to get the energy you need to keep it running. Whether it be geothermal, crude oil by air, massive solar panel arrays or hey... maybe nuclear power.

The point is, diamonds and silver outweigh the cost of transporting crude by air. Not because it's smart, but because it's necessary.
 

JOEFRIDAY2

Well-Known Member
I really like what Delta is doing here and I predict they will be very successful with their oil refinery as well as their efforts to decrease the cost of crude oil for that refinery. I believe they will have up to a 60 cents a gallon price advantage over those airlines that do not have a refinery.

Joe
 
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