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Delta Airlines looking to transport Bakken crude by rail

BY ALISON SIDER

NEW YORK -- Delta Airlines is looking at ways to bring less expensive crude from the Bakken formation in North Dakota to its newly purchased refinery in Pennsylvania, Chief Executive Edward Bastian said.

Speaking at the Deutsche Bank Aviation and Transportation Conference, Mr. Bastian said the company is working with railroads to find a way to take advantage of the price difference between different types of crude.

Crude from Bakken is priced off the United States benchmark WTI--while the refinery currently uses north Atlantic crudes, which is based on the European standard, Brent crude. WTI futures cost about $18 less a barrel than those of Brent, and Bakken actually is priced at a discount to WTI because of the lack of infrastructure to transport it from Montana.

"We' re looking at options to be able to bring in Bakken crude from the Dakotas at net prices that would be equivalent to WTI or even lower," he said. "It' s very early to draw any conclusions, but this could lead to even larger savings."

Delta' s subsidiary, Monroe Energy bought the Trainer refinery from Phillips 66 earlier this year with the aim of producing jet fuel. The 85,000 bopd refinery has been idle for nearly a year, and Monroe has spent the last several months modifying it to more than double its jet fuel output.

Delta expects to save at least $300 million annually in jet fuel costs once the refinery is up and running, which is expected by the end of the month.

Mr. Bastian said the company could save even more if it found a cheaper source of crude oil. Thursday, WTI futures settled up 0.2% at $95.53 a barrel, while Brent futures settled 0.4% higher at 113.49 a barrel. WTI cost $17.96 less than Brent.

The United States pipeline network has been strained by the boom in shale oil production, and companies are scrambling to find other ways to get crude from fast-rising production areas like North Dakota. This year the state jumped ahead of Alaska and California to become the second-largest crude oil producing state in the United States.

Mr. Bastian said the company is studying whether it will continue to be worth investing in transporting oil from North Dakota if the spread between WTI and Brent crude narrows.

We' re working with the railroads, he said, adding that the company was "getting good intelligence" on rail transport of crude from the region.

Several other refiners and producers have or are thinking of making similar investments.

Valero Chief Executive Bill Klesse said at another conference Thursday morning that refiners "should all be in the railcar business."

Valero spokesman Bill Day said the company is buying a "significant" number of rail cars to bring crude to its refineries.

We have found that because of the high lease rates and long lease periods, it' s more economical to purchase cars, he said.

Mr. Day said Valero had been moving Bakken crude to its Memphis refinery by rail for some time, and was looking into rail options for other refineries as well.

Phillips 66 has bought 2,000 rail cars to bring crude from the United States interior to its refineries. Tesoro has said it will start bringing Bakken crude to its Anacortes, Wash., refinery by train starting in september. Statoil has said it is leasing more than 1,000 railroad cars to carry crude from North Dakota oilfields to refiners.

Dow Jones Newswires

09/07/2012

 

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