Delta's Philly Refinery at 110 pct, Margins Swell

Delta Air Lines Inc is running its Philadelphia area oil refinery at a near-record 110 percent of capacity, according to a person familiar with operations, a sign of the surprisingly strong summer profits U.S. refineries are generating.

While collapsing global crude oil markets have cast a dark shadow over much of the energy industry, refiners are running flat out this summer to meet record U.S. demand for gasoline. Some have pressed beyond their theoretical limits as rivals suffered unexpected breakdowns or glitches last month.

The refinery, in Trainer, Pennsylvania, has been running at a clip of roughly 204,000 barrels per day for the past month, the source said, resulting in higher yields of gasoline and distillates. The plant's nameplate capacity is 185,000 bpd, according to the U.S. Energy Information Administration.

"We have run that before, but not in a very long time," the source said.

The refinery is operated by a Delta subsidiary, Monroe Energy, which declined to comment.

The increased run rates are the result of, among other factors, the replacement and widening of pipes to allow for greater flows, the source said. Typically, crude units can safely run above their stated capacity, but processing units are limited by a number of factors, including piping and the type of crude, experts say.

Delta is not alone. HollyFrontier Corp. ran its refineries in Tulsa, Oklahoma and El Dorado, Kansas at rates above 100 percent in the second quarter, Chief Executive Mike Jennings told analysts a month ago.

In the entire Midwest region, refiners ran at 100.3 percent of capacity in the week to July 31, EIA data showed, matching their peak from a year earlier.

U.S. motorists, encouraged by cheap gasoline prices, drove a record 275 billion miles in June, surpassing the previous peak from 2007. Gasoline demand, which accounts for a tenth of world oil demand, rose 4 percent that month from a year ago, data showed this week.

"Demand for gasoline in the United States is high, perhaps as high as its ever been," said John Auers, executive vice president at refinery consulting firm Turner Mason. "Refiners are taking advantage of it."

HOBBLED RIVALS
An unusually large number of Monroe's rivals have been hobbled by glitches or outages over the past month.

U.S. refiners processed more than 17 million barrels per day in the last week of July, the highest on record. Throughput rates have, however, fallen in each of the past four weeks, typically the time when summer holiday gasoline demand peaks.

On the East Coast alone, refiners processed 1.23 million bpd of crude oil in the first week of August, the highest since September 2011, just before the last of a string of refinery closures that reduced the region's capacity. Last week throughput had eased to 1.217 million bpd. <REFCR-1-EIA>

PBF Energy is still working to repair compressors associated with the gasoline-making fluid catalytic cracker at its Delaware City refinery after a Aug. 21 fire knocked it out of service. Phillips 66 shut its Bayway, New Jersey, refinery's 150,000 bpd FCC, the largest on the East Coast, unexpectedly last week before restarting it on Sunday, and Philadelphia Energy Solutions was forced to shut an FCC over the weekend and suffered a fire in a reforming unit Monday.

BEYOND JET FUEL
Delta has moved beyond its initial goal of making jet fuel for its fleet of airplanes, the stated mission when the airline shocked the business community with its purchase of the refinery in 2012.

"Simply producing jet fuel was not going to be the way they were going to make profits. They have to be an autonomous refinery," said Ed Hirs, an energy professor at the University of Houston who has been critical of Delta's decision.

Delta reported profits of $176 million at the refinery in the first half of the year, ahead of its target of $300 million for the year. Market prices suggest the windfall has continued.

Gasoline crack spreads, a rough measure of refiner margins, climbed to $24 a barrel in August, the highest in at least five years for the month. Physical New York harbor premium gasoline traded at the highest premium to benchmark crude in a decade, Reuters data shows.

Reporting By Jarrett Renshaw