Delta Air Lines subsidiary Monroe Energy expects no change to US cabotage regulations that make waterborne movements of domestic crude more expensive.
The airline's refining subsidiary uses four US-flagged and crewed vessels required under federal shipping regulations to move light sweet crude from the US Gulf coast to its 185,000 b/d refinery in Trainer, Pennsylvania. The regulations, known as the Jones Act, were unlikely to change, Monroe financial planning and economics leader Tracy Sadowski said at the Argus Americas Crude Summit in Houston, Texas.
The requirements increase the cost of waterborne movements between US ports compared with moving commodities in from or to overseas markets, and prices have climbed. Time charter rates reached $60,000/d in recent market discussions, up from $40,000/d in 2017.
The Jones Act was passed in 1920 to ensure a US-made and helmed merchant marine fleet. While President Donald Trump's administration has sought to reduce regulations, officials have not often moved to waive or remove the requirement.
Trainer relies on a significant volume of US light sweet crude, which trails west African crudes as the second-largest portion of its slate. Upcoming regulations that require a reduction in sulfur emissions from the global marine fleet will increase competition for sweeter supplies as refiners that lack more complex equipment will seek feedstocks that produce less of the fuel contaminant. Delta Air Lines consider the regulations, known as International Maritime Organization (IMO) 2020, a potential risk for higher jet fuel prices beginning in the second half of this year.
Monroe had no plans to install expensive coking or other major units needed to shift crude diets or otherwise take advantage of sour supplies, Sadowski said. The company would instead seek potential new options for its vacuum gas oils and the flexibility of the nearby New York Harbor storage market to take advantage of expected increases in higher distillate margins and preserve a natural hedge for its parent company.
"Whatever we can or cannot do in the refinery can be optimized further downstream," Sadowski said.
Product placement was not a problem for the refiner, Sadowski said. Monroe was much more focused on the price, predictability and quality of its crude supplies as gasoline becomes less valuable in the US.
"As you see gasoline get so weak and distillate so long, we are really focused on whether we value crudes that contain distillate properly," Sadowski said.
