Contamination, Mars Pipeline, and Supply / Demand Overview
Contamination leads to oil price discount and purchase halt
A recent zinc contamination issue in the Mars crude oil stream, sourced from offshore platforms in the Gulf of Mexico near Louisiana, has significantly impacted the regional oil market. The contamination, reportedly caused by an additive used on one of the offshore platforms, has led to a decline in demand and prices for this flagship U.S. coastal crude. Initially trading at a 75-cent premium to WTI Cushing, Mars crude flipped to a 10-cent discount due to quality concerns, as zinc, which does not naturally occur in crude oil, can cause corrosion and damage to refinery units. Reuters reports that this issue has prompted ExxonMobil to halt purchases of Mars crude until the contamination is resolved, raising questions about short-term supply and demand dynamics along the Gulf Coast.
Offshore Genesis impacts Port Fourchon and Other Pipelines
The Mars crude oil stream, primarily transported through the Mars Pipeline, originates from the Mars platform in Mississippi Canyon 807 and is supplemented by pipelines such as Olympus, Ursa, and Amberjack. These pipelines collectively deliver approximately 550,000 barrels per day to Port Fourchon, Louisiana, with about 400,000 barrels continuing to the LOOP storage facility at Clovelly via the Mars Pipeline (Figure 1).
Downstream implications lead to St. James and Baton Rouge
From Clovelly, the crude is transported northward through the LOCAP Pipeline to St. James, where it serves as a critical supply for refineries. Transactional data from the State of Louisiana indicates LOCAP delivers 200,000-300,000 barrels per day to Exxon facilities at St. James (Figure 2) which eventually make their way to ExxonMobil’s 540,000 barrel per day Baton Rouge facility.
Potential implications: storage, imports of alternative light/heavy oil, and export blending
The implications of the contamination extend beyond immediate supply disruptions. If refineries, wary of potential equipment damage, continue to reject Mars crude, excess barrels may accumulate in storage at Clovelly or be exported to international markets where blending with other streams could mitigate quality concerns. Meanwhile, Exxon and other refiners may turn to alternative sources, such as imported crude through the LOOP terminal to replace the contaminated Mars barrels. This shift could further depress Mars crude prices, as seen with the recent discount, while increasing reliance on imports which could most closely replace the Mars barrel quality. Supply of light or heavy crude from Texas could also be called upon via increased flows on Zydeco or Bayou Bridge into St. James.
While the issue is likely short-term, as the contamination stems from a platform additive that could be quickly rectified, a prolonged disruption could tighten supply along the Gulf Coast, especially given the region’s dependence on offshore crude. The Gulf Coast refining hub, particularly from southeast Louisiana to Baton Rouge, is intricately tied to offshore production, making it vulnerable to such quality issues. If unresolved, the situation could lead to broader market shifts, with refineries adapting by sourcing alternative crudes or blending contaminated barrels for export, potentially reshaping regional supply dynamics.
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