Delta takes US$350 million gamble on renewable fuel obligations

©Delta Air Lines

Having reported an overall adjusted net loss of US$2.26 billion for the quarter ended March 31, a loss for the fifth quarter in a row, Delta Air Lines (Delta) has run up a debt of US$346 million in unpurchased credits through Monroe Energy, a 185,000-barrel-a-day Delta-owned refinery. In the meantime, Delta is looking to convince the White House to remove the obligations to comply with the U.S. Renewable Fuel Standard (RFS).

Refiners like Monroe Energy are required, by law, to blend billions of dollars in biofuel with their own fuel, or buy credits from other refineries, though this can be at a cost of millions of dollars. Delta has tried, unsuccessfully, to sell Monroe Energy, based in Trainer, Pennsylvania. A spokesman pointed to comments on an April 15 investor call by the airline’s co-chief financial officer, Gary Chase, who said a “huge escalation in the cost of RINS” from 60 cents to 70 cents at the end of the fourth quarter to above US$1.00 now has impacted “near-term performance.” Chase suggested the price movements were among “short-term dislocations” affecting the refinery. Refiners in the past have suspended the purchase of credits, known as RINS, if there has been a cashflow problem, if they anticipate the cost of RINS falling, or if they anticipated regulatory relief to reduce their compliance requirements.

According to company filings, Delta’s US$346 million outstanding liability on biofuel credits is approximately double its full-year 2020 RFS compliance costs of US$172 million and appreciably greater than the US$58 million it paid in 2019. The current US$346 million due represents the current value of credits the company would need to buy to comply with the RFS, credits which are meant to be handed in to the Environmental Protection Agency each year.

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