3 big myths about Delta's Refinery---article

[Andy]

It's good you will reserve judgement until 2014, but if disagree with Fanboy's #1 and #3 reasons, then give reasons why you disagree. I'd like to know.

#1: He erroneously applies Modern Portfolio Theory (MPT) to corporations. MPT is for individuals, not corporations.
Applying his use of MPT to another Delta consumable, beverages, perhaps Delta should start manufacturing the onboard drinks? They don't because economies of scale apply to the manufacturing process.

#3: While I gave Delta a pass on Trainer's Q4 performance and will give them a pass through 2014, there comes a point in time where they either figure out how to operate the facility profitably or they should throw in the towel.
The author's argument that Hess' decision to shut down their Port Reading facility will reduce supply and drive up crack spreads is incorrect. The Port Reading facility is only able to process cracking feedstocks, not crude oil. In other words, it would require major upgrades to process crude oil. So what about the cracking feedstocks that it won't process anymore? Other refineries have been upgraded to process higher volumes of feedstocks into refined products. There are a lot of refineries in the US undergoing upgrades to not only produce additional refined products but also to process higher concentrations of heavy sour crude. (The Philadelphia Sunoco/Carlyle refinery is just one refinery being upgraded; there are two new refineries proposed to be built in North Dakota). That's important because light sweet demand is outstripping supply while heavy sour is not in as high demand.

A major obstacle for the Trainer facility is shipping costs to the facility. If they can find a way to have crude delivered to Trainer at a lower cost than shipping by rail, there's a good chance that the project will be financially successful. I don't rule out that possibility.

 

[redflyer65]

I'll have to say that Andy got it exactly right. I agree with giving the venture some time to play out. SW looked into the same move a little over ten years ago and the numbers didn't support it. But I'm sure they will be watching closely.

The friction of just getting the crude from ND is going to be hard to overcome. Other refiners have already run the numbers, then shut down once they saw those numbers. The author of this article didn't even mention that aspect. More of a PR piece instead of objective journalism.

I've always said it would be interesting to watch it play.

 

[scoreboardII]

Myth five, losing money is somehow considered making money.

 

[General Lee]

#1: He erroneously applies Modern Portfolio Theory (MPT) to corporations. MPT is for individuals, not corporations.
Applying his use of MPT to another Delta consumable, beverages, perhaps Delta should start manufacturing the onboard drinks? They don't because economies of scale apply to the manufacturing process.

#3: While I gave Delta a pass on Trainer's Q4 performance and will give them a pass through 2014, there comes a point in time where they either figure out how to operate the facility profitably or they should throw in the towel.
The author's argument that Hess' decision to shut down their Port Reading facility will reduce supply and drive up crack spreads is incorrect. The Port Reading facility is only able to process cracking feedstocks, not crude oil. In other words, it would require major upgrades to process crude oil. So what about the cracking feedstocks that it won't process anymore? Other refineries have been upgraded to process higher volumes of feedstocks into refined products. There are a lot of refineries in the US undergoing upgrades to not only produce additional refined products but also to process higher concentrations of heavy sour crude. (The Philadelphia Sunoco/Carlyle refinery is just one refinery being upgraded; there are two new refineries proposed to be built in North Dakota). That's important because light sweet demand is outstripping supply while heavy sour is not in as high demand.

A major obstacle for the Trainer facility is shipping costs to the facility. If they can find a way to have crude delivered to Trainer at a lower cost than shipping by rail, there's a good chance that the project will be financially successful. I don't rule out that possibility.

Thanks Andy for your hearty reply. I "believe" management thinks shipping the crude via rail from ND may be cheaper than crude at Brent Crude prices from Nigeria, so maybe that is their thinking. If you save a buck per gallon, or whatever, maybe it is worth it in the long run. As you and Red say, it will be interesting to watch. Thanks again.


Bye Bye---General Lee

 

[Andy]

Thanks Andy for your hearty reply. I "believe" management thinks shipping the crude via rail from ND may be cheaper than crude at Brent Crude prices from Nigeria, so maybe that is their thinking. If you save a buck per gallon, or whatever, maybe it is worth it in the long run. As you and Red say, it will be interesting to watch. Thanks again.

If Bakken (or a Canadian light sweet crude) could get to Trainer via pipeline, the facility would almost certainly be profitable. Since there are other refineries in the general area of Trainer that would also benefit from a pipeline, we may see an announcement within the next year that a pipeline will be built.