US Gulf sour outage prompts refinery slate rethink

Key US Gulf crude transportation disruptions caused by Hurricane Ida will prompt coastal refiners to recalibrate crude slates in the coming months as less medium sour supplies arrive in Louisiana.

The West Delta-143 A platform, which handles medium crude sour production from the Mars and Ursa platforms, is offline and expected to return to service in early 2022. West Delta-143 C, which handles Olympus platform output, is expected to return in the fourth quarter, according to Shell. Those assets combined typically process roughly 240,000 b/d according to Argus estimates. The prolonged outage of the key Mars stream will likely prompt US Gulf coast refiners to seek alternate international grades and increase light sweet runs.

Mars prices have risen because of the prospects of the prolonged outage. Prompt October Mars was heard to trade at a $1.25/bl discount to the US light sweet benchmark at Cushing, Oklahoma, earlier today, before it was bid up to a 95¢/bl discount to Cushing near the time of Nymex settlement. Prompt Mars traded at a $2/bl discount to Cushing in the prior session.

Mars had traded at a steady discount to the Cushing benchmark in the summer as the Gulf coast was well-supplied with sour crude. But Mars prices flipped to a brief premium after the storm and are now gaining relative to inland US benchmark prices.

October Mars prices also averaged a month-to-date 82¢/bl premium to November Mars as of 17 September, the highest monthly prompt to second-month premium since the January 2020 trade month. This type of spread signals increasing backwardation as prompt sour shortages support prompt prices in relation to forward prices.

Aside from domestic sour replacements and waterborne cargoes, Gulf coast refiners may consider Canadian sour supplies to replace Mars. Canadian grades like Cold Lake and Western Canadian Select (WCS) are heavier and sourer than Mars, but can be used in its place at refineries with proper setups. They can also be blended with lighter grades to create a Mars lookalike, sometimes referred to as a dumbbell blend.

Heavy Canadian prices have gained ground in the aftermath of the platform outage. WCS Houston prices closed at a $3.80/bl discount to the CMA Nymex basis in the prior session, up by 42¢/bl from the start of the week.

US Strategic Petroleum Reserve crude (SPR) will also be available to replace lost Mars production. The US Department of Energy earlier this month finalized a 20mn bl sale of sour crude from the Big Hill Sour, Bayou Choctaw Sour, Bryan Mound Sour and West Hackberry Sour SPR sites for delivery during the fourth quarter.

Last year, Gulf coast storms shut as much as 84pc of offshore production, according to the US Bureau of Safety and Environmental Enforcement (BSEE). US Gulf medium sour deliveries at the Texas coast were halted for months after storm-related platform damage caused an outage on the Cameron Highway Oil Pipeline System.

By Alex Endress