Delta’s Oil Refinery Looked Like A Bad Bet—Then It Made $1.36 Billion, But It Isn’t “Cheap Fuel”

Delta’s oil refinery looked like an expensive mistake for years. Then it made $1.36 billion in operating profit from 2022 through 2025, and the Iran war made the bet look smarter still. But the payoff isn’t cheap fuel that lets Delta profitably fly routes its rivals can’t—it’s a refining business that can make more money when jet fuel gets expensive. Delta can earn money refining fuel. It can earn money flying passengers. Burning fuel on flights gives up the money it could make selling the fuel to someone else Owning the refinery doesn’t make that opportunity cost disappear. In fact, Delta agrees with this, and that’s how they show it in their financials. The airline’s annual report values refinery-to-airline fuel transfers at market prices. What confuses people is the way Delta reports its consolidated results. Refinery operating profits reduce reported aircraft fuel expense. That makes the airline’s reported fuel cost per gallon look lower, but it doesn’t make the fuel economically cheaper. Delta could sell the refinery’s output, buy its airline fuel at market prices, and retain the same combined economics. Owning a profitable refinery helps their bottom line, but that’s different than helping their flights or hedging the price of oil (in fact they aren’t hedging oil, the refinery has to buy the oil, they are hedging refining cost). Delta Promised The Refinery Would Pay For Itself In A Year In 2012, under CEO Richard Anderson, Delta bought the idled Trainer refinery outside Philadelphia through its Monroe Energy subsidiary. The announced economics looked like: $180 million to buy the refinery. $30 million in government subsidies, reducing the acquisition cost to $150 million. Another $100 million planned to modify the facility and increase jet fuel production. That’s where the $250 million initial investment figure comes from. Delta projected $300 million in annual savings. Chief Financial Officer Paul Jacobson said they expected to “fully recover our investment in the first year of operations.” Things did.. not go well. Hurricane Sandy disrupted distribution infrastructure, and the refinery lost $63 million in 2012. It lost another $116 million in 2013. There were good years after that. In 2015, operating profit reached $290 million. But it wasn’t a steady climb. Delta was even looking to sell a stake and bring in a partner in 2018. Most Of The Profit Came After The Pandemic Here are Delta’s reported refinery segment operating profits and losses. T Year Operating Profit / Loss 2012 -$63 million 2013 -$116 million 2014 $96 million 2015 $290 million 2016 -$125 million 2017 $110 million 2018 $58 million 2019 $76 million 2020 -$216 million 2021 -$2 million 2012–2021 Total $108 million 2022 $777 million 2023 $385 million 2024 $38 million 2025 $157 million 2022–2025 Total $1.357 billion First Half Of 2026 $311 million Nearly 93% of the cumulative operating profit through 2025 came in the last four years. Most of that came in 2022 and 2023. And the capital investment grew far beyond the opening estimate. Adding up Delta’s reported refinery capital expenditures gives $1.624 billion through 2025. The usual story of a $250 million cost for the refinery now generating more than a billion dollars leaves out most of the money Delta actually committed. In the third quarter of 2026, Delta’s refinery actually lost $33 million, though this is blamed largely on reduced capacity following a June 25 fire there and reduced capacity and they expect to earn a profit in the fourth quarter. The Refinery Hedges Refining Margins, Not The Entire Fuel Bill The refinery buys crude oil. Delta then turns it into refined products. The difference between crude prices and the prices of those products is the refining spread, often called the crack spread. When crude itself gets more expensive, the refinery’s raw material gets more expensive too. When the world runs short of refining capacity, Delta’s airline pays more for jet fuel while its refinery can earn more making it. Earnings in one business can offset higher costs in another. This year’s disruption is particularly favorable to the strategy. The Energy Information Administration reports that third-quarter jet fuel and diesel refining spreads were nearly triple their year-earlier levels. Disrupted refining in Russia, China and the Middle East has squeezed supplies. Delta reported $351 million in refinery operating profit in the June quarter. Why Own A Refinery Instead Of Hedging? Delta doesn’t need to own a refinery to hedge refining spreads. There are even contracts covering the difference between jet fuel and heating oil prices. At the same time an airline can’t just inexpensively by all the protection it wants, for as many years as it wants, at the locations where it needs fuel. Southwest’s 2024 annual report described limited opportunities to hedge jet fuel directly more than approximately two years ahead. Trainer gives Delta a long-lived position in refining capacity, physical production and delivery infrastructure. They have to keep maintaining the plant, but they don’t have to keep renewing the entire position as contracts expire. Copyright vanbeets / 123RF Stock Photo I’ve argued against airline fuel hedging, explained American’s decision to stay out of it, and covered the $4.65 billion in hedging losses reported by ten airlines early in the pandemic. If fuel gets cheaper, an airline can lose on its hedge while saving on its fuel purchases. The purpose is to reduce an exposure the business can’t comfortably bear. But it requires knowing how much protection you’re buying, what it costs, whether it matches your fuel purchases and what happens when your flying changes. Airlines had contracted against fuel consumption that suddenly disappeared, and their costs for that fuel was above market. American’s argument has been that fuel prices and ticket revenue tend to move together. A strong economy can support higher fares while fuel costs rise. In a recession, cheaper fuel cushions weaker demand. What that doesn’t account for is a supply shock that raises fuel costs at the same time it makes people less willing to travel. And airlines have already sold tickets for flights whose fuel they haven’t yet purchased. Southwest had famous hedging successes but eventually closed its remaining fuel hedges in 2025. Delta’s former Vice President of Fuel settled federal charges over using confidential employer trading information for personal trades, including trades against his employer (he appeared to have been front-running Delta’s trades in his own account). The order required him to return $3.5 million and pay a $1.75 million penalty. Refining Capacity Is Limited, And Demand Is High Owning existing refining capacity becomes more attractive when adding competing capacity is expensive, slow and difficult. The Energy Information Administration says U.S. refining capacity fell by about 250,000 barrels a day during 2025. Closures exceeded additions. But existing plants expand, and fuel can come from overseas. Before the war, the International Energy Agency’s 2025 outlook projected 4.2 million barrels a day of global refining additions through 2030 partly offset by 1.6 million barrels of closures. It expected net additions to exceed growth in demand for refined products. Oil is a global market, but U.S. refining capacity has been limited. Meanwhile, overall demand for energy is growing substantially. Artificial intelligence and data centers contributes to this. While those facilities primarily need electricity supplied by natural gas, renewables, nuclear and coal, bidding away those resources drives up demand for oil too. Owning The Plant Means Owning The Problems Financial hedges don’t require Delta to operate equipment that can injure workers, leak gasoline or shut down during a fuel shortage. There have been numerous serious incidents during Delta’s ownership: Five contractors hospitalized in 2019. The federal workplace-safety investigation describes eight workers preparing equipment for maintenance on January 23, 2019. Five were hospitalized following exposure to hydrofluoric acid. Four employees injured in June 2026. A June 25 refinery fire caused four non-life-threatening injuries. A potentially 378,000-gallon gasoline spill at associated infrastructure. Monroe subsidiary MIPC discovered a leak at its Chelsea Pipeline Station and Tank Farm in August 2025. In December it told Pennsylvania regulators that up to 9,000 barrels may have escaped. Air pollution violations. Monroe agreed to pay roughly $400,000 in 2017 over emissions and monitoring violations from 2013 through 2016. Regulators also credited a new flare-gas recovery system with substantially reducing emissions. Pipeline safety violations. Federal regulators assessed $108,900 against MIPC in 2016 over pipeline repair and inspection requirements. Government subsidies also didn’t end with the acquisition. Pennsylvania handed over $500,000 in July for cooling infrastructure as the facility earns record profits. The Refinery Could Look Like A Bad Investment Later The conditions producing today’s profits can reverse. Disrupted foreign refineries restart and exports recover, reducing the premium on jet fuel and diesel. New capacity and expansions outgrow demand. A recession reduces demand for both airline seats and petroleum products. Electric vehicles, efficiency improvements or alternative fuels weaken demand for the gasoline and diesel Trainer also produces. Crude, natural gas, maintenance or compliance costs rise faster than output prices. A major outage prevents Monroe from capturing strong margins while Delta pays for repairs and replacement fuel. The original investment looks much better now than it did in its first 9 years. The 2022 and 2023 profits were extraordinary and they now benefit from the Iran war. The refinery didn’t deliver the quick payback Delta promised, and 2012 management didn’t necessarily foresee what’s making it profitable now. All things equal my bet though is on energy production being increasingly valuable. Topics on this page