Genscape : Crude Supply Chain Thaws Following Extreme Winter Weather

However, the cold snap that swept through the country had a more muted effect in North Dakota despite temperatures that frequently plummeted to below negative 20 degrees Fahrenheit.

The subzero weather presented production and logistical challenges in the Bakken, as output from the shale play in the week ending December 29, 2017, declined 30,000 bpd from the previous week to 1.168mn bpd, according to Genscape data. Though as temperatures warmed in the subsequent week, production in North Dakota parsed the previous week's decline, as it added 8,000 bpd.

The Brrr-fect Storm: The East Coast Weathers a Bomb Cyclone

An extreme winter storm, categorized as a 'bomb cyclone,' worked its way up the East Coast during week ending January 5, causing freezing temperatures, severe winds, heavy snowfall, and even flooding. The sudden storm had the potential to wreak havoc on the oil supply chain. Substantial refinery and transportation infrastructure lies within the path of the storm, while the heavily populated coast accounts for a good chunk of the country's refined products demand. However, the industry emerged from the storm relatively unscathed.

No monitored refinery units were shut down along the East Coast over the weekend, despite the region being pummeled by the winter bomb cyclone, according to Genscape's North American Refinery Intelligence report. Although some refineries reportedly decreased run rates, the overall impact of the extreme winter weather was much milder than many projections.

Philadelphia Energy Solutions' refinery is expected to begin planned maintenance at a 36,000 bpd catalytic reformer, 50,000 bpd hydrotreater and benzene unit at their 335,000 bpd Philadelphia plant during the week ending January 12, according to a January 8 Reuters report.

The planned work at PES - Philadelphia was delayed due to extreme winter weather in the region, which also caused the refinery to reduce rates due to slowed crude deliveries, Reuters indicates. Crude lightered from ships anchored offshore in PADD 1 in the week ending January 5 declined by 684,000 bbls week-on-week to 1.368mn bbls, with all of the lightering movements coming from the Delaware Bay Anchorage area, according to Genscape's North American Waterborne Crude report.

Meanwhile in the Mid-Continent, the 64,000 bpd crude section and 16,000 bpd coker at Phillips 66's 306,000 bpd Wood River, IL, refinery were shut December 29 following a frozen pipeline and brief fire, according to Genscape. The units, which are the only known cold-induced shutdowns, remained offline as of January 11. Also at the refinery, the 182,000 bpd crude distillation unit was shut on January 8.

In Canada, the 37,500 CDU and associated vacuum distillation unit at Shell's 75,000 bpd Sarnia, ON, refinery were restarted on January 9 after being shut on January 7, according to Genscape. It is unclear if extreme temperatures contributed to the unit shutdowns at Sarnia.

The extreme winter weather took its toll on regional gasoline demand for the week ending January 5, according to Genscape's Supply Side data. Gasoline rack activity in PADD 1B for the week ending January 5 fell 8.2 percent from the previous week, and PADD 1A fell 2.5 percent from the previous week, contributing to the 2.8 percent decline in week-on-week U.S. gasoline demand estimates published in Genscape's Weekly Gasoline Demand report.

In that report, Genscape estimated that total U.S. gasoline demand was 8.44mn bpd for the week ending January 5. In contrast, the EIA showed an increase from the previous week in Weekly Products Supplied for U.S. Gasoline, up 1.9 percent from the week ending December 29, 2017. The lack of demand in PADD 1B amid the winter weather will likely show up in the EIA weekly data for the week ending January 12, as EIA Products Supplied is calculated based on changes in primary supply sources, rather than actual downstream consumption.

In general, gasoline rack activity in PADD 1A and PADD 1B dropped considerably on January 4-7 amid the winter storm and drastic drop in temperatures that followed, then recovered on January 8 as conditions improved (see chart). Thursday is typically the most robust day of the week for gasoline rack activity, and the inclement conditions caused a significant drop in gasoline demand year-on-year on January 4, with PADD 1A gasoline rack activity 43.2 percent below 2017 levels and PADD 1B gasoline rack activity 20.8 percent below 2017 levels, according to Genscape's Supply Side Time Normalized Data. Year-on-year gasoline demand for PADD 1A and 1B remained weak until January 8 (see chart).

Conclusion - Checking the Forecast

Although the first significant freeze of the season is typically the most impactful, severe weather can still affect production and logistics in the field as the winter progresses. Operators are bracing for another round of harsh temperatures this upcoming weekend (January 12-14), with North Dakota expected to see temperatures below the negative 20 degree Fahrenheit mark, and West Texas projected to also drop below freezing. As a cold winter unfolds, Genscape will continue monitoring crude production, storage inventories, transportation flows, refinery operations and refined products demand to provide clarity on the impacts of extreme seasonal weather on the oil supply chain.

Genscape's gas groups also saw widespread disruptions with freeze-offs reaching record highs. In a blog posted on January 9, our gas teams noted freeze-offs knocked out nearly 5 Bcf/d of U.S. production. During a 14-day period starting right after Christmas, a record cumulative 29 Bcf of production was frozen off. This came at the exact same time that temperatures fell to record lows in many markets, driving gas demand to record highs. Collectively, this sent localized gas prices (particularly in Midwest and Northeastern markets) to record highs as well.

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