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US Gulf Coast margins drop as natural gas prices rise

Rising natural gas prices are eating into refining margins on the US Gulf Coast, where over 75% of US Gulf of Mexico natural gas remains shut in due to Hurricane Ida, an analysis from S&P Global Platts showed on Sept. 13.

US Gulf Coast cracking margins for WTI MEH dropped to $16.07/b for the week ended Sept. 10, from the $16.97/b for the week ended Sept. 3, according to S&P Global Platts Analytics data as the price of natural gas, used as a power source for many refineries, rose sharply.

According to the US Bureau of Safety and Environment, about 1.685 Bcf/d of US Gulf of Mexico natural gas was still offline as of Sept. 10, more than 10 days after Hurricane Ida made landfall as a Category 4 hurricane near Port Fourchon, Louisiana.

The price of Henry Hub gas averaged $5.04/MMBtu for the week ended Sept. 10, the highest price since Feb. 14, during the big freeze which enveloped Texas, when it reached $4.9850/MMBtu, according to S&P Global Platts price assessments.

“Keep in mind that every $/MMBtu is about a minus 25 cent/b hit to refining EBITDA margins,” said Matthew Blair, analyst at Tudor Pickering Holt, in a research note.

Platts Analytics data shows the variable cost component of USGC WTI MEH cracking margins — which includes fuel costs — rose to average $2.09/b for the week ended Sept. 10 compared with $1.95/b for the previous week.

Mars force majeure

Due to damage to the Mars oil producing infrastructure, operator Shell declared a force majeure because of Hurricane Ida, particularly on the West Delta-143 platform, as a company spokesperson said it was expected that “numerous contracts will be impacted.”

The average weekly price of Mars rose $1.19/b to $69.15/b for the week ended Sept. 10, according to Platts prices assessments, while USGC Mars coking margins dropped to $14.34/b for the week, down from the $16.27/b for the week ended Sept. 3, according to Platts Analytics data.

Cracking margins for US Gulf of Mexico benchmark Light Louisiana Sweet also fell to average $15.18/b for the week ended Sept. 10 from the $16.27/b the previous week.
Source: Platts

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