TX Refineries Cut Output as Spill Curbs Shipping

Royal Dutch Shell Plc and LyondellBasell Industries cut production on Monday at their Houston-area oil refineries because of shipping disruptions along a waterway affected by a petrochemical fire and spill, according to people familiar with the matter.

A fire and fuel leak at Mitsui & Co Inc's Intercontinental Terminals Co (ITC) storage facility in Deer Park, Texas, last week sent gasoline, water and fire suppressant foam into the Houston Ship Channel, which connects Houston to the Gulf of Mexico, and is home to nine oil refineries.

The U.S. Coast Guard said it was reopening portions of the channel to daytime travel and requiring vessels moving out of the area nearest ITC to be inspected for chemical contaminates.

Houston Pilots, whose members guide ships in and out of the channel, reported outbound traffic through the spill area was limited to vessels with less than a 34-foot draft and during daylight hours with ships moving through the area spaced at about one-hour intervals.

A 7-mile (11-km) stretch of the channel was closed on Friday after chemicals, including benzene, were detected in the water, leading to a bottleneck of tankers unable to enter or exit a busy area of the Houston port.

The cutbacks by Shell and Lyondell helped boost spot prices for gasoline at the Gulf Coast, which climbed 2.75 cents a gallon on Monday, compared with Friday.

Shell reduced output at its 275,000-barrels-per day Deer Park, Texas, joint-venture refinery with Mexico's Pemex because of a shortage of crude, the people said. The size of the reduction could not immediately be learned.

Lyondell reduced its output by 14 percent because it cannot remove sulfur generated at the plant during fuels production and has limited storage capacity on site, the people said.

Some of the Shell Deer Park plant's processing units are on circulation, a standby process that halts production but keeps unit at operating temperatures allowing a quick return to production, the people said.

Shell's operations at Deer Park were stable, said spokesman Ray Fisher. The plant is near the ITC storage terminal that caught fire more than a week ago, releasing chemicals into the air and local waterways. Shell last week instituted a temporary shelter-in-place for workers after air monitors detected elevated levels of benzene.

On Monday, 31 vessels were waiting to enter the busiest U.S. oil port and another 31 were unable to depart, said Coast Guard Supervisor Ashley Dumont, up from 26 each on Sunday morning.

"We are experiencing constrained barge and vessel logistics capabilities," said Lyondell spokeswoman Chevalier Gray. "We are currently evaluating the impact of this event on our production and logistics capabilities."

ITC said crews were continuing to siphon fuels from its site, the ship channel and nearby waterways on Monday afternoon.

As long as crews are working to remove fuel and chemicals in the industrial waterway, traffic will move only during daylight hours, Coast Guard Captain Kevin Oditt said at a morning briefing.

The oil market's reaction to the ship channel closure has been muted, with Houston crude prices "slightly weaker" because vessel traffic was expected to resume soon, traders said.

West Texas Intermediate crude at Magellan East Houston for April delivery, a grade called MEH, traded at a $5.85 per barrel premium to U.S. crude futures, down from a $6.10 midpoint on Friday, traders said.

"I don't think people expect this to be a prolonged issue," one trader said.

(Reporting by Collin Eaton and Erwin Seba; Editing by Dan Grebler and Peter Cooney)