Coke market for now unaffected by pipeline attack

A ransomware attack on the US Colonial pipeline system should have a limited effect on the petroleum coke market as long as the system is up and running by the end of the week, market participants say.

There could be some risk to US Gulf coke production, but only if clean products tanks fill, which would require refineries to drop crude run rates in order to offset the limited storage.

"The longer it is down, the probability of reducing crude rates goes up," a market participant said.

But if pipeline service is restored by the end of the week as expected, many coke marketers do not think there will be much impact to coke. Most refineries are taking a wait-and-see approach, opting not to cut runs unless absolutely necessary as refining margins are at their highest levels since Hurricane Harvey. Some have booked floating storage for refined products in case of an extended outage.

Still, some refineries have reduced rates in response to the outage. Citgo reduced rates at its 425,000 b/d refinery in Lake Charles, Louisiana, while another US Gulf refiner was heard reducing gasoline production because of the pipeline outage.

Petroleum coke has remained in short supply as US Gulf refiners recover from Covid-19-related weak transportation fuel demand and reduced production after extreme winter weather in February.

Any potential impact to refinery runs could also be mitigated if President Joe Biden's administration chooses to waive the Jones Act, which may be a possibility if Colonial remains down for more than a week and fuel supply reaches critical levels on the east coast. This act prohibits foreign ships from transporting goods between US ports and makes such domestic transfers largely uneconomic. A waiver would allow refineries to continue running at or near current rates while still supplying fuel by vessel.

Tanker and barge demand for Jones Act ships has surged in recent days as traders look for alternatives and wait for pipeline service to return.

Colonial pipeline initially shut down on 7 May after the company notified shippers of network issues that were later revealed to be a cybersecurity breach. It moves up to 2.5mn b/d of gasoline, diesel and jet fuel to 17 states across the US southeast and Atlantic coast that together account for 30pc of US oil demand.

By Sarah Tucker