Damage from Hurricane Ida will curb Shell’s oil production until early next year

Royal Dutch Shell, the largest U.S. oil producer in the Gulf of Mexico, said damage to offshore transfer facilities from Hurricane Ida will curtail production early next year, reducing deliveries by a type of crude oil prized by refiners.

Shell was the hardest-hit producer of Ida, which crossed the Gulf of Mexico into the United States last month and took 28 million barrels off the market. Ongoing disruptions have hampered exports and boosted crude prices as Asian buyers seek substitutes for the popular Gulf Mars grade.

Three weeks after the storm, around 40% of Shell’s production in the offshore region is still offline. Shell is the largest US producer in the Gulf with eight facilities pumping around 476,000 bpd, according to researcher Rystad Energy. Overall, the US Gulf produces 1.8 million bpd, or about 16% of US oil production.

Suspended contracts

Shell’s damaged transfer facility, West Delta-143, transports oil and gas from three major fields for processing at onshore terminals. The company had previously suspended numerous crude supply contracts from the fields, citing losses caused by the hurricane.

The fields are a key source of sour Mars crude, a quality prized by oil refiners in the United States and Asia. Rystad analyst Artem Abramov estimated that the lost production will remove 200,000 to 250,000 barrels per day (bpd) from oil supplies from the Gulf of Mexico for several months.

“The disruptions are now impacting total crude available for export from the United States, not just offshore grades,” said Krista Kuhl, an analyst at consultancy Facts Global Energy.

Mars prices had hit a one-year high this month, then eased as other oil supply constraints eased. The grade was trading at a $2 a barrel discount to the US benchmark on Friday. , down from a premium.

“Based on current prices, it is likely that there will be significantly less crude exported,” Kuhl added.

A Shell spokesperson declined to comment further.

2022 restarts

Shell’s Mars and Ursa oilfields, which deliver about 200,000 bpd combined, would be affected in the first quarter of next year. The third oilfield, Olympus, is producing around 100,000 bpd and will be able to resume production in the fourth quarter, Shell said.

About 18% of the United States’ Gulf oil and 27% of its natural gas production remained offline on Monday, more than three weeks after Hurricane Ida, regulator Bureau of Safety and Environmental Enforcement (BSEE) said.

Mars crude exports averaged 150,000 bpd in the first eight months of 2021, representing about 5.5% of total US crude exports of 2.75 million bpd, according to Kpler data. The United States exported about 3.21 million barrels of oil per day in 2020, according to the Energy Information Administration.

Wood Mackenzie analyst Mfon Usoro said the extended shutdown of the WD-143 platform would also affect smaller operators such as LLOG Exploration Co LLC that use the Mars pipeline.

LLOG did not immediately respond to a request for comment.

(Reporting by Arathy S Nair in Bengaluru; Editing by Aditya Soni, Nick Macfie and David Gregorio)

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