Hurricane damage to cut Shell’s oil output through year-end

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

Shell was the hardest-hit producer from Ida, which tore through the U.S. Gulf of Mexico last month and removed 27 million barrels over all from the market. The continuing disruptions have hampered export activity and raised crude prices around the world, as Asian buyers searched for substitutes for the popular Gulf Mars grade.

Three weeks after the storm, about 40 per cent of Shell’s production from the offshore region is still offline. Shell is the largest U.S. Gulf producer with eight facilities pumping about 476,000 barrels a day, according to researcher Rystad Energy. Over all, the U.S. Gulf produces 1.8 million b/d, or about 16 per cent of U.S. oil output.

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

The fields are a key source of Mars sour crude, a grade prized by oil refiners in the United States and Asia. Rystad analyst Artem Abramov estimated the lost production will remove 200,000 to 250,000 b/d of Gulf of Mexico oil supply for several months.

“Disruptions are now having an impact on total available crude for export from the U.S., not just the offshore grades,” said Krista Kuhl, an analyst with consultancy firm Facts Global Energy.

Mars prices had soared to a one-year high earlier this month then eased as other oil supply constraints lifted. On Friday, the grade traded at a US$2 a barrel discount to the U.S. benchmark, down from a premium.

“Based on current pricing there is likely to be much less crude exported,” Ms. Kuhl added.

Shell’s Mars and Ursa oilfields, which supply about 200,000 b/d combined, would be affected into the first quarter of next year. The third oilfield, Olympus, produces about 100,000 b/d and will be able to resume production sometime in the fourth quarter, Shell said.