U.S. Gulf Coast refineries may cut output due to Colonial outage

Port Arthur refinery Image: Total

Most U.S. Gulf Coast oil refineries are expected to trim output as an extended shutdown of the Colonial Pipeline Co. system cuts off their main conduit for getting products to markets from Houston to New Jersey.

Much of the cuts may be shouldered by refineries from Port Arthur, Texas, and eastward, which lack the option of placing barrels on pipelines that serve the U.S. Midwest. About 13 per cent of the 4.7 million barrels of capacity in that region has been cut since the weekend and that could rise to about 15 per cent, according to estimates by London consultancy Energy Aspects.

Colonial has restarted a small section in the four days since its shutdown and doesn’t expect substantial restoration of service before the weekend. Refiners, who place as much as 2.5 million barrels a day of gasoline, diesel and jet fuel into Colonial’s system, are running out of storage and transport options.

“As the shutdown goes on longer and longer they are all going to have to take some action,” said Andy Lipow, president of Lipow Oil Associates in Houston. “Their inventories are filling. If they don’t book tankers they are going to have to cut their operations.”

Driving season

The last thing the big refineries dotting the Gulf Coast want to do is to make less gasoline near the start of the summer driving season that kicks off during the U.S. Memorial Day weekend at the end of May. Some had only recently recovered from winter storms that shut in production and damaged valuable equipment, or just returned units to operations after spring maintenance.

At least one refinery each in Texas and Louisiana reduced production because Colonial shut its gasoline and distillate pipelines Friday after the cyberattack. Once Colonial restores operations, products already in the pipeline can flow again, freeing up space for Gulf Coast refineries to empty storage tanks and resume normal operations.

“For the refineries, it will be less than two days,” Lipow said. “They just need Colonial to pick up the product that is in inventory to make room for increased production.”

Relief can’t come soon enough: As supplies shrink, retail gasoline pumps from Louisiana to Virginia are running out of fuel and panic buying has been reported. Refiners are eager to help refill those pumps and just need a way to get to market. Chevron Corp. said Tuesday in a statement that “the duration of the outage may lead to limited disruptions in supply in some areas.”

“What starts as a flow disruption may turn into an actual supply disruption if affected refiners cut back on production rates to avoid stock build ups,” the IEA said Tuesday in a report.

© 2021 Bloomberg L.P.

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