Ida may cut US Gulf coke, coal supply for weeks

US Gulf petroleum coke production may be disrupted for weeks after a Category 4 hurricane made a direct hit on the refining and shipping hub of New Orleans, Louisiana, this weekend.

Hurricane Ida's 150mph (240km/h) sustained winds and nine-foot storm surge made it one of the strongest storms to ever hit Louisiana when it made landfall on 29 August. Most refineries, industrial plants and shipping terminals within its path had yet to determine the full extent of the damage to their facilities even days later, as flooded roads, downed power lines and lack of mobile phone service made travel and communication challenging.

Lack of electricity service was the biggest impediment to starting up refineries and solid fuel terminals. All eight power transmission lines serving the New Orleans area were knocked out of service, with some power lines falling into the Mississippi River and creating a navigation hazard. The US Coast Guard yesterday established a safety zone between mile marker 105 and 108 near the Huey P Long Bridge just upriver from the city of New Orleans. All vessels are prohibited from entering the area without express permission until 30 September or until salvage operations are complete.

Local utility Entergy managed to restore electricity to parts of greater New Orleans last night. But it was unclear how long refineries and terminals on the Gulf coast might remain without power, with the utility warning on 29 August that a hurricane of this strength can shut down power for up to three weeks. Even with full power restored, refinery restarts are typically lengthy and dangerous processes that can take several weeks to complete.

The storm knocked more than 2mn b/d of Louisiana refining capacity off line, or roughly 13pc of total US capacity. This includes key fuel-grade petroleum coke producers Marathon Petroleum's 565,000 b/d Garyville, ExxonMobil's 500,000 b/d Baton Rouge, PBF Energy's 190,000 b/d Chalmette and Valero's 215,000 b/d St Charles refineries.

Marathon said yesterday that Garyville was damaged and without power, with the facility running off generators in order to conduct repairs. The company was still "working on a timeline for resuming operations". The Chalmette refinery may also be in a precarious position, as 22 barges in the Mississippi River abutting the facility came loose from their moorings, causing damage to at least one bridge and threatening levees in the area. Phillips 66's 250,000 b/d Alliance refinery in Belle Chasse, downriver from Chalmette, confirmed yesterday that it had flooded after a storm surge broke through a temporary levee. Shell's 250,000 b/d refinery in Norco, located between Chalmette and Garyville on the river, said there was "evidence of some building damage", as images on social media showed flooding around the facility's storage tanks. The latter two refineries are key anode-grade coke producers.

The ExxonMobil Baton Rouge refinery, further inland up the river, did not sustain damage and was already beginning to restart procedures yesterday. The facility had initially tried to continue operating some units throughout the storm, but power outages led to its complete shutdown on 30 August. Chevron needed some time to conduct an assessment of its 356,000 b/d refinery in Pascagoula, Mississippi, but said today that it continues to operate.

Looking to Laura and Harvey

Other hurricanes in recent years have damaged refineries and petroleum coke calciners, at times leading to companies declaring force majeure on petroleum coke cargoes and driving up spot prices.

Hurricane Laura's landfall in eastern Texas and Louisiana last year lowered coke production by an estimated 500,000t. The Argus 6.5pc sulphur US Gulf fob assessment rose by $9.50/t from 26 August to 30 September 2020 to $61/t, roughly one month after Hurricane Laura hit. The specification rose by the same amount from 23 August to 20 September 2017, to $72/t, following Hurricane Harvey's reduction of coke supply on the Texas coast. Harvey disrupted more than 25pc of total US refining capacity.

Petroleum coke buyers have been eager for US Gulf coke production to return to normal levels following the Covid-19 pandemic's impact on refined product demand. But although refinery throughputs have risen in recent months, US Gulf high-sulphur coke production has remained lower than normal, in part because of a switch to lighter crudes.

This switch has been particularly pronounced in Louisiana. Citgo chief executive Carlos Jordá told Argus last week that the company's Lake Charles refinery has been reconfigured to use 90-95pc light crude in response to changing market conditions in the region.

Coal export impacts could compound tightness

The lower coke production in Louisiana recently could mean that petroleum coke supply reductions may not be as deep as during Laura or Harvey, even if some refineries remain down for weeks. But one key difference with Ida is its effect on coal export infrastructure.

The lower Mississippi river is one of the major hubs for US coal exports, which have been on the rise recently. Over 5.3mn t of coal shipped out of the New Orleans area in the first half, more than triple the volumes of a year earlier, according to US Census Bureau data. Convent Marine Terminal, United Bulk Terminal and International Marine Terminal, all of which ship petroleum coke and coal, are out of service following Ida, with their restart dates uncertain. The Burnside Terminal was also heard to have declared force majeure. Convent Marine Terminal owner Suncoke Energy said last night that the facility "sustained modest damage" but that it expected to be able to resume operations within 24-48 hours of electricity being restored. Rail and barge service bringing coal and coke to the terminals has also been shut down.

European coal prices were already at their highest levels since 2008 because of supply shortages in the Atlantic basin, which has contributed to the US ramping up shipments as a swing supplier. India has also been buying more US coal recently as it seeks out lower-cost fuel options, with imports of US coal in the first seven months of the year reaching nearly 9mn t compared with around 7mn t in full year 2020.

If the hurricane impacts disrupt US Gulf coal exports for even a moderate length of time, this may contribute to even higher coal prices and further boost petroleum coke prices for those cargoes that are still available to ship.

The coke market early last week was looking as though it could be on the verge of tipping lower as a larger number of high-sulphur cargoes were being offered in the Gulf. But the disruption from Ida now looks likely to sustain prices at record-high levels, even if the storm does not result in the roughly $10/t price increases seen after Harvey and Laura.

By Lauren Masterson

Lower Mississippi petroleum coke assets