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Houston ship lane to have 'tapered' reopening; Exxon cuts output

Source: Reuters - Mon, 24 Mar 2014 22:15 GMT
Author: Reuters
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* Coast Guard says will re-open channel 'as soon as we can'

* More than 80 inbound and outbound vessels waiting to move (Updates with detail about re-opening; adds quotes, byline; changes dateline)

By Erwin Seba

TEXAS CITY, Texas March 24 (Reuters) - U.S. authorities expected a "tapered" re-opening of the Houston Ship Channel, but gave no timeline on Monday of when vessels could start moving again after an oil barge spill shut the waterway for a third day, forcing the nation's second-largest refinery to curb production.

"We will begin the process of a tapered ... not a floodgate resumption of marine traffic," Captain Brian Penoyer, commander of U.S. Coast Guard sector Houston-Galveston and captain of the Port of Houston, told reporters on Monday.

"We anticipate re-opening the Houston Ship Channel as soon as we can," he said.

Earlier on Monday, the Coast Guard had told ship operators that it should be able to reopen the waterway later in the day, resuming at least some supply of crude oil to more than one-tenth of the nation's refining capacity. A Coast Guard spokesman declined to discuss the timeline.

Even earlier, officials had said the channel could remain shut for several more days. Penoyer explained that traffic can't move again until there's no more oil in the water to cling to ships and be carried further. Also, any ships that were touched must be cleaned before moving through water deemed sufficiently clean, he said.

The closure of the channel on Saturday has led to a queue of more than 80 vessels trying to move into or out of the Gulf of Mexico. Shipping delays forced Exxon Mobil Corp to cut production at its largest refinery.

Exxon said production at its 560,500 barrel per day Baytown, Texas, refinery had been cut on Monday due to the closure of the Houston Ship Channel. The company expects further production cuts by mid-week if the channel remains shut.

INVENTORIES CONSIDERED AMPLE

Analysts on Monday were largely unconcerned, noting that ample inventories in the region provide a cushion for refiners.

But a senior engineer at a Houston-area refinery that depends on crude deliveries through the ship channel was concerned about the requirement that the water be cleaned of any thick fuel oil before ships run back and forth to ensure they don't track it further upstream or into the Gulf.

"We're toast," the engineer said. "I would say this is a big problem. Any delay is bad, but three days or more is really bad because we use the channel to bring crude and products in and out."

The ship channel was shut on Saturday after a collision between a Kirby Inland Marine oil barge and a cargo ship, spilling some 4,000 barrels, or 168,000 gallons (636,000 liters), of residual fuel oil. The channel allows oil barges and cargo ships to sail from the Gulf Coast to refiners and terminals further inland.

Penoyer said the thick viscosity of the oil made it recoverable by skimmers.

A total of 39 ships were waiting to leave the port of Houston and 43 ships were waiting to come in, the Coast Guard said on Monday afternoon. Penoyer said a typical day in the channel includes movement of 60 to 80 large ships - tankers, freighters, containers and cruise ships - and 300 to 400 tug and barge movements.

A warning to mariners issued by the Coast Guard on Sunday said portions of the Houston channel and its offshoots to Texas City and Galveston, Texas, along with a portion of the Gulf Intracoastal Waterway, could be closed through March 29 or longer, depending on the requirements of a cleanup.

Five ships waited to come into the ports of Texas City and Galveston, Texas, and 12 ships waited to leave the ports, the Coast Guard said.

Kirby Inland Marine is operated by Kirby Corp.

Penoyer said Kirby "immediately" stepped forward to take responsibility for the response costs by hiring the cleanup crews.

Cleanup crews have pumped all of the remaining fuel oil from the barge, which has been refloated and moved to a different position near the site of the collision in the channel.

Marathon Petroleum Corp. declined on Monday to discuss operations at its 451,000-bpd Galveston Bay Refinery and 80,000-bpd Texas City refinery. Royal Dutch Shell's joint-venture 327,000 bpd Deer Park refinery was evaluating supply impacts and had contingency plans to mitigate them, a spokeswoman said.

Fewer than 10 oil-covered birds have been recovered for cleaning, according Texas wildlife agencies. (Reporting by Erwin Seba in Houston, Selam Gebrekidan in New York, Terry Wade in Orlando; Editing by Jeffrey Benkoe, Stephen Powell, Bernard Orr and Cynthia Osterman)

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