Genesis Energy says CHOPS pipeline staying offline into November after Hurricane Laura damage

Houston — The Cameron Highway Oil Pipeline System, known as CHOPS, that originates in the Gulf of Mexico is expected to stay offline well into November after an associated offshore platform was damaged by Hurricane Laura, triggering weaker differentials in Louisiana.

Crude oil from CHOPS, a 500,000 b/d system that has remained offline since late August, is being redirected from Texas to Louisiana via the Poseidon and Auger pipelines while CHOPS remains out of service.

Genesis told its customers on Oct. 1 that it is asking to resume normal operations for CHOPS subject only to certain forecasted weather conditions. However, the approval process through the US Bureau of Safety and Environmental Enforcement is expected to last at least a few weeks. The earlier expectation was that the pipeline would return in October.

"We believe it unlikely that CHOPS will resume normal operations prior to Nov. 1. We continue to work with customers to find alternative paths to shore for all affected barrels," Genesis stated in its message to customers.

Genesis said it will update its customers again on Oct. 15 unless it receive guidance from BSEE before then.

Crude oil flows on CHOPS, which delivers to Texas Gulf Coast end points in Port Arthur and Texas City, are still mostly being redirected to the Poseidon or Auger pipelines for transportation to locations onshore in Louisiana.

Genesis' 350,000 b/d Poseidon Pipeline instead goes to southeastern Louisiana. Genesis also is working with Shell's Auger Pipeline that takes a similar route as Poseidon.

An increase in Gulf of Mexico produced sour crude flows to the Louisiana area provides more competition for Mars crude, which also delivers to end points in Louisiana, potentially applying downward pressure on differentials for the grade.

Differentials for USGC crudes that have delivery points in the Louisiana area weakened significantly on Oct. 2, following the news of the prolonged outage of CHOPS.

Gulf of Mexico produced, medium sour crude Mars was heard to trade on Oct. 2 at a 30 cents/b premium to cash WTI, down 20 cents/b from Oct. 1. Mars is down from a $2.25/b premium on Aug. 24 before Laura made landfall.

The weakening was not limited to sour crudes, as both Light Louisiana Sweet crude and Heavy Louisiana Sweet crude premiums fell. LLS crude was last heard to trade on Oct. 2 at a 70 cents/b premium to cash WTI, down 65 cents/b from Oct. 1. HLS crude was last heard to trade Oct. 2 at a 20 cents/b discount to cash WTI, down 60 cents/b from Oct. 1.

While CHOPS itself wasn't damaged, the pipeline system goes over an offshore platform that sustained some topside damage structural stress during Laura.

Genesis said it completed its initial inspections and analyses of the damaged Garden Banks 72 platform and updated BSEE for the review. Genesis representatives met Oct. 1 with BSEE officials on Oct. 1 to summarize the initial findings and answer any immediate questions, Genesis said.

Genesis noted that it is continuing to work with its customers to find alternative paths to bring all affected barrels onshore.

Hurricane Laura decimated much of southwestern Louisiana, where large swaths of the region are still out of electricity. Almost 1 million b/d of refining capacity remains offline in Louisiana, including the Phillips 66 and Citgo Petroleum refineries near Lake Charles.