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Texas Gulf Coast braces for Tropical Storm Nicholas as Ida recovery continues

Highlights

Less than 45% of US Gulf oil production remains offline after Ida

Gulf producers, Texas refiners braced for Nicholas

Prices still elevated for heavier, more sour crudes

The Texas Gulf Coast's refining complex remained braced for Tropical Storm Nicholas on Sept. 13 just as neighboring Louisiana and the US Gulf of Mexico oil and gas producers continued to recover from the devastation of Hurricane Ida just more than two weeks prior.

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With maximum sustained winds of 60 mph, Nicholas is expected to be more of a rain event as it makes a late-Sept. 13 or early-Sept. 14 landfall, unlike Ida with Category 4 winds, according to the National Hurricane Center. As such, there were not any reports of refinery shutdowns ahead of Nicholas with most refiners on the Texas Coast and in western Louisiana monitoring the storm's progress and implementing their storm preparedness plans.

While nearly half of US Gulf oil and gas production remained offline Sept. 13 from Ida, producers were not planning to shut in more production because of Nicholas.

Shell, for instance, said Sept. 13 it was monitoring Nicholas and evacuating some non-essential personnel from its westernmost Perdido platform. Because Perdido was west of Ida's path, it was never shut in from the previous storm.

Now 15 days after Ida made landfall south of New Orleans near Port Fourchon, Louisiana, the biggest Gulf producers have redeployed most of their offshore personnel and restarted much of their production. Also, more critical onshore terminals are returning to service.

About 793,522 b/d, or 43.6%, of crude oil production remained offline on Sept. 13 from the US Gulf, of the roughly 1.8 million b/d of pre-storm production, said the US Bureau of Safety and Environmental Enforcement. The return of natural gas is taking a little longer though, with about 1.151 Bcf/d, or 51.6%, of natural gas still shut in.

Shell said its Appomattox, Enchilada/Salsa and Auger platforms were back online as of Sept. 12, while the Mars, Ursa and Olympus assets remained shut in. Shell said it was in the process of redeploying crews to Olympus.

The US Coast Guard on Sept. 13 shut the Houston Ship Channel to inbound traffic while allowing outbound traffic, according to shipping notes.

Texas refineries braced

While operations were normal Sept. 13 at most Texas oil refineries, ExxonMobil said its two Texas refineries -- the 560,500 b/d Baytown plant and the smaller, 369,024 b/d Beaumont plant -- were preparing for Nicholas.

"We are closely monitoring Tropical Storm Nicholas and have started preparations for severe weather at our Baytown and Beaumont refinery and chemical complexes," said Julie King, a spokesperson for the company.

Other refineries also were monitoring the storm before taking action, said Citgo, Phillips 66 and other major Texas refiners.

In Louisiana, the US Department of Energy thus far has authorized the release of 3.3 million barrels from the Strategic Petroleum Reserve, including 3 million barrels to ExxonMobil's 520,000 b/d Baton Rouge Refinery, which is restarted and fully operational again, as well as 300,000 barrels to the nearby, 75,000 b/d Placid Refining facility in Port Allen, Louisiana.

The onshore oil refineries were getting back up and running more quickly than the offshore oil production from the US Gulf of Mexico, so the White House tapped the SPR to help supply more of the Louisiana oil refining network in order to avoid more widespread fuel shortages.

About 2.2 million b/d in Louisiana oil refining capacity came offline because of Ida, but only about 700,000 b/d will remain offline following the ongoing startup of PBF Energy's 190,000 b/d Chalmette Refinery.

Three Louisiana refineries remained offline following Hurricane Ida, with Shell's 227,400 b/d Norco Refinery and Valero's 215,000 b/d St. Charles Refinery still without power. Phillips 66's 255,600 b/d Alliance Refinery is expected to stay shuttered for some time as repairs are underway to address water damages and oil spills.

Power and pricing

Much of the return of the remaining onshore infrastructure depends on the restoration of electricity. About 90% of the customers who lost power in Louisiana and Mississippi had their power restored as of Sept. 13, according to primary utility provider Entergy.

However, while the Greater New Orleans metro area is mostly restored, close to 70% of Lafourche, St. Charles and Terrebonne parishes remained without power Sept. 13, including refining or port hubs in Port Fourchon, Houma and Norco, Entergy said. Some power outages are expected to extend as long as Sept. 29, according to the utility.

Port Fourchon officials said that water service is expected to be restored early this week. Port tenants are continuing to assess their damage.

Port Fourchon is the home of LOOP's onshore facilities, which includes a booster station and Clovelly Dome Storage Terminal. LOOP, the only deepwater port in the US capable of loading VLCCs with crude, had suspended deliveries ahead of Ida. LOOP said Sept. 9 its "supply chain is functioning" now as the offshore oil port continues to work with shippers to receive and deliver crude oil to regional refineries.

The impacts of lost Gulf crude production also were still being felt in values of the heavier sour grades desired by Gulf Coast refiners, including for West Texas Sour.

Differentials for WTS were heard to strengthen to parity with WTI Midland on Sept. 10, up from around a 40 cent/b discount to WTI Midland earlier in the week, as one trader noted the lost Gulf production as being a driver of the strengthening.

Values for medium sour crude Mars, meanwhile, were last assessed on Sept. 10 at a 20 cent/b premium to cash WTI, after the differential for the grade weakened towards the end of last week amid returning production and the potential for increase imports of sour grades. October barrels of Mars crude were last heard bid flat with cash WTI, while the offer level was last heard at a 75 cent/b premium.