Mars spot crude prices jump on shortage as offshore output slowly returns from Ida

Spot Mars crude prices jumped Sept. 3 on a lack of available US Gulf Coast crude, as offshore producers restored small volumes of production that were taken offline prior to Hurricane Ida's strike on Louisiana earlier in the week.

October barrels of Mars were heard bid at a 25 cents/b premium to cash Cushing WTI, and offered as high as a $3/b premium.

Mars was assessed by S&P Global Platts at a 30 cents/b premium to WTI. That was up from an assessment of minus 5 cents/b Sept. 2, and a $1.40/b discount on Aug. 27, prior to Ida's landing.

Traders remain uncertain about when crude production will return in the Gulf of Mexico, as well as the status of Louisiana refineries that were damaged by flooding or shut due to power outages.

With a limited number of Louisiana refineries operating and more than 90% of Gulf of Mexico oil production shut-in, there continued to be general talk among traders that "there is not enough crude oil for refiners."

Shell's announcement on Sept. 2 that its integral US Gulf West Delta 143 facility was damaged seemed to stoke even more uncertainty about the return of production and crude oil availability.

The WD-143 facilities serve as the transfer station for all production from Shell's assets in the Mars corridor in the Mississippi Canyon area of the Gulf of Mexico to onshore crude terminals.

"It's been gapping in the past week," one crude broker said about Mars values. "With that Shell damage [it's] very, very dicey."

The US Department of Energy has so far authorized the release of crude from the Strategic Petroleum Reserve to just one refinery, ExxonMobil's Baton Rouge plant. Other companies may have requested SPR crude, although the DOE could not be reached for comment Sept. 3.

Crude imports are expected to rise next week into the USGC to 9.34 million barrels from 4.31 million barrels this week, according to Kpler data, although all of that crude is heading to Texas ports, not Louisiana.

93.3% of US offshore crude output still down

By around noon Sept 3, US Gulf producers had restored about 4,000 b/d of crude in the previous 24 hours, and 45,000 Mcf/d of natural gas, according to the US Bureau of Safety and Environmental Enforcement.

According to BSEE, 1.699 million b/d of oil, or 93.3% of the Gulf's total, remained down, as well as 1.9 Bcf/d of natural gas output, 89% of pre-storm output,

In addition, 133 platforms were still down, or about 24% of the US Gulf's total, compared with 177 platforms the prior day.

Producers usually fly over their US Gulf platforms within a day or two of a hurricane's passage through the area, but Ida damaged helipads and other south Louisiana transportation infrastructure and logistics, delaying inspections and the return of crews.

Ida landed a direct hit Aug. 29 at Port Fourchon, Louisiana, a key hub that serves as a point of transportation to and from offshore facilities and receives over 90% of the US Gulf crude and gas output. From there, the hub distributes the volumes to various storage facilities and terminals via a network of pipelines.

Louisiana Highway 1, which leads to Port Fourchon, reopened Sept. 3. Port officials said they will notify port tenants on allowing only a phased-in entry for damage assessments, and that it still remains too early for any timeline on restoring port operations.

Port Fourchon is also home of the Louisiana Offshore Oil Port's onshore facilities, which includes a booster station and Clovelly Dome Storage Terminal.

Producers assessing damages

Most producers Sept. 3 appeared to be busy either assessing potential damage to offshore sites, re-crewing platforms, or making other arrangements. A few upstream operators have said that they are temporarily moving shore bases to alternate sites that were out of Ida's path.

"Right now it seems operators are looking at Galveston, Intercoastal City, and Cameron as a new or temporary base of operation while Port Fourchon is in recovery," said Sami Yahya, analyst with S&P Global Platts Analytics. "Interestingly, Cameron used to host heliport infrastructure—but not anymore; they were closed in recent years given dwindling offshore activity and there was no need for it."

Chevron said Sept. 3 it has redeployed essential personnel to its six offshore facilities, "which did not sustain any significant damage."

Shell said it has undertaken "some limited flights" to move non-essential personnel to shore. The major earlier in the week said it was establishing a temporary crew change heliport because its Houma, Louisiana primary heliport showed "significant" damage from Ida.

Shell also said it continues to assess damage at its West Delta 143 offshore facility.

Refiners begin restarts

Louisiana refiners have started to return operations, although the return has been slowed by a lack of power in the eastern portion of the state.

Marathon spokesperson Joe Gannon said Sept. 3 the company's Garyville plant is now receiving reliable electric power and is in the initial stages of restarting.

"Our terminal facility in Garyville continues to provide fuel to customers, business partners and local emergency responders," Gannon said. "We are leveraging the MPC network of pipelines, terminals, marine and truck transportation assets to move fuel to where it is needed most. We appreciate the efforts of our utility provider and state and local officials to quickly restore electricity."

ExxonMobil's Baton Rouge refinery is also in the process of restarting.

Marathon's Garyville plant, Shell's Norco refinery and Valero's Norco refinery are in the harder-hit St. Charles and St. John parishes.

PBF Energy's Chalmette refinery and Valero's Meraux refinery are in areas that utility company Entergy said Sept. 3 should have power restored by Sept. 7.

Phillips 66 has said its Alliance Refinery sustained some damage and will take longer to return.