UPDATE 1-Delta expects 40,000 bpd jet fuel output from refinery
(Updates story throughout)
March 4 (Reuters) - Delta Air Lines Inc said on Monday it is expects to produce 40,000 barrels-per-day (bpd) at its 185,000 bpd Trainer, Pennsylvania refinery by the end of the year, a lower rate than a goal first proposed when it bought the refinery last year.
Delta President Edward Bastian said in a JPMorgan presentation that the 40,000 bpd output represented about 25 percent of Delta's domestic jet fuel consumption and about 22 percent of the refinery's current capacity.
The Atlanta-based airline originally said it expected to spend about $100 million to increase jet fuel production at the refinery to 52,000 bpd, or about 32 percent of capacity, while reducing gasoline production.
The refinery, owned by Delta subsidiary Monroe Energy, began making jet fuel last September and by early November was up to about 30,000 bpd, a source familiar with refinery operations told Reuters at the time.
It was unclear whether Delta has reduced its target for jet fuel production at the refinery. A Delta spokesman was unable to immediately comment.
Regardless, the refinery is expected to be operating at full capacity this week, Bastian said. It had been operating at 75 capacity for most of the first quarter because of operational issues, he said. "Yet we still expect to break even on the facility in the (first) quarter," Bastian said.
Delta bought the refinery last year from Phillips 66 in a bid to gain more control over its fuel costs, saying it expected to save about $300 million annually off its yearly fuel bill of $12 billion.
"There's evidence here that we're going to make this work for us; but like anything that's big and new and different, it's taken us a little bit longer to turn on than we thought," Bastian said.
Had the facility been running at full capacity in the first quarter, Bastian said Trainer would have likely produced a profit of $60 million.
He expects Trainer to turn a profit of $75 million to $100 million during the second quarter.
Delta is taking steps to make the refinery more profitable. These include shipping low-cost crude oil by rail from North Dakota's Bakken shale to replace more expensive crude from the North Sea and Africa.
Other East Coast refiners, such as PBF Energy, have already taken similar steps. PBF recently began receiving crude oil shipments by rail at its 182,000 bpd Delaware City, Delaware refinery.
Delta's Trainer refinery received its first crude-by-rail shipment in February. The airline expects to begin receiving a regular supply of crude-by-rail from the Bakken region by mid-2013, according to Bastian's presentation. (Reporting by Cezary Podkul and Karen Jacobs; Editing by Gerald E. McCormick and Marguerita Choy)