Oil & Energy

Google Ad

Countries around the world store oil for times of crisis and price bumps, the idea is store it and use it in emergency. What if that oil is not usable, if it is contaminated? Three buyers from the US Strategic Petroleum Reserve say just that, from oil bought last year from the SPR.

SPR Bryan Mound TX

An exclusive report from Reuters reports that three firms bought cargoes of SPR oil stored in an underground salt cavern in Bryan Mound, Texas last year and say they are contaminated and poisonous. The firms raised concerns about dangerous levels of a poisonous chemical in the cargoes, according to internal Energy Department emails and shipping documents reviewed by Reuters.

One of the great stabilisers of crude oil since the crash from $150 to $25 and back to $65 has been the mass hording of oil, in particular by China. Other stabilisers have been bankers using old ships to store oil to play the calender spread. To the point  existing oil in the U.S. SPR  Presient Obama started selling off in the last year of his Presidency. 

Now Houston we have a problem, what if all that oil isn't good?
What if America doesn't have the oil reserves it says it has?
You know where this is going, we'll leave that for another time.

The reality is if refiners would need to spend time and money removing contamination before producing fuel due to poor crude quality the U.S. Strategic Petroleum Reserve (SPR) becomes less useful in an emergency. The kicker is we don't know how widespread the issue is as selling the SPR is a brand new phenomena. The relevance is grand, the U.S. SPR is the world's largest government stockpile, currently holding 665 million barrels.

How Can an SPR get contaminated?

The obvious question is these reserves are safe right, designed to maintained purity right?

Hydrogen sulfide (H2S) occurs naturally in crude and natural gas, but oil producers typically decontaminate such products before delivery to buyers. High levels of H2S can corrode refinery parts and pipelines - and can be lethal to humans in gas form.

From The Reuters Exclusive:

The three firms that raised concerns about high H2S levels were Royal Dutch Shell Co, Australian bank Macquarie Group and PetroChina International America, the U.S. trading arm of state-owned energy firm PetroChina Co Ltd, according to the shipping documents, emails provided by the Energy Department in response to a public records request, and a department official who declined to be identified.

The department took responsibility for cleaning the shipment to PetroChina with an additive after it determined in May of last year that levels of H2S were too high, according to the departme n response to the Reuters public records request. The firm was "unpleasantly surprised" to find the high levels, Shell oil trader Steve Sellers wrote to the department, adding that the issue caused concern at Shell about the quality of SPR crude for future purchases.

Shell declined to comment on its complaint to the government. The oil firm's emails said an initial test sample detected H2S gas at levels of less than five parts per million (ppm). But a later test by Shell - after it shipped the crude by boat to another U.S. location - showed H2S levels of 600 parts per million, according to Shell's emails to the department. Exposure to vapors containing 500-700 ppm of H2S could cause a person to collapse in five minutes and die within an hour, according to the U.S. Occupational Safety and Health Administration.

In November, Australian bank Macquarie Group bought the third shipment from the SPR and sold it to PetroChina, according to the shipping documents reviewed by Reuters. The cargo was loaded at Freeport onto a ship called the Stena Sunrise, the documents show. A testing company named Inspectorate tested a sample from the SPR cargo purchased by Macquarie, according to the documents, and found H2S levels of up to 9,000 ppm. Inspectorate declined to comment and referred questions to the Energy Department. Macquarie declined to comment.

After the Inspectorate testing, the terminal operator refused to allow workers to perform additional tests out of concern about violating safety regulations, according to the shipping d eclined to comment. After the Inspectorate testing, the terminal operator refused to allow workers to perform additional tests out of concern about violating safety regulations, according to the shipping documents. It is unclear if PetroChina or Macquarie decontaminated the cargo. PetroChina shipped the oil to China, where it arrived on Jan. 18, according to Thomson Reuters shipping data.  Department Spokeswoman Shaylyn Hynes declined to comment about the contamination complaints uncovered by Reuters.

The U.S. government established its reserve in 1975 following the Arab oil embargo. The U.S. Department of Energy oversees the reserve and periodically sells some of its oil at times when there are no emergencies, as it did with the sales that sparked contamination concerns.

Reuters was not able to determine how often high levels of H2S are detected across the industry, but industry experts and chemical petroleum engineers said such incidents are rare. Some crude grades can have H2S levels as high as 1000 ppm when produced, said Ramanan Krishnamoorti, chief energy officer and a professor of chemical and biomolecular engineering at the University of Houston. But producers remove most of that before transporting crude to customers.

Contamination could result from blending different crude grades, for example when one grade of crude is stored in a tank that previously contained a different grade, Krishnamoorti said. "There has to be some concentrated source of it," Krishnamoorti said. "It's just very odd."

It maybe nothing of course, bad handling, fixable but it is one of those stories than grow to influence price shpud oil continue to catch a bid. Will keep an eye on this if it is a developing story.

Source: Reuters Exclusive

Log in to comment
Discuss this article in the forums (0 replies).