Upside Down - A Drill Down Report on Big Changes Coming to the Condensate Market

The combination of rising condensate demand as new splitter capacity came online and falling conde supply resulted in just what you’d expect — higher conde prices. Worse yet for the companies that made throughput commitments for those new splitters, the once-favorable price differentials between conde and light-crude benchmarks West Texas Intermediate (WTI) and Louisiana Light Sweet (LLS) have been turned on their heads, and a number of splitters are operating at far less than capacity. Today, we continue our look at the roller-coaster world of conde, this time focusing on conde prices and differentials, and on the forces that may change the conde market once again.

Back in 2015, U.S. production of superlight crude oil and condensate had been on the rise for five years, driven primarily by boom times in the Eagle Ford shale play in South Texas. Condensate was selling for several bucks-a-barrel less than light-crude benchmark West Texas Intermediate (WTI), the U.S. government had recently approved the export of minimally processed condensate, and new condensate splitters were being built to allow refineries to use more high-API-gravity liquids. Fast forward to now, though, and production of superlight crude and conde is off by one-third ­­— the lighter the material, the steeper the decline — a barrel of conde is selling for several dollars more than WTI and a lot of those new splitters are running at far less than full capacity. As for exports of neat conde, they’ve dropped to almost zero, and whatever superlight crude and conde that is being exported goes out as part of blended crude. But things could be about to change again, possibly in a big way. Today, we begin a new blog series on the chaotic U.S. conde and superlight crude market.

The sharp decline in U.S. condensate production since early 2015 and the end to the ban on U.S. crude oil exports a few months later were a one-two punch for the companies that made throughput commitments to condensate splitters and made other conde-related infrastructure investments. In what seemed like a flash, conde supply plummeted and the steep price discount to WTI and other light crude that made conde so attractive for splitting and exporting was gone. Holders of splitter capacity were paying top-dollar for what conde they could corral, and operators were forced to run their brand-new facilities at far less than capacity. And, when the general ban on crude exports was lifted in December 2015, the special status that conde had enjoyed since exports of lightly processed conde were permitted in June 2014 was a thing of the past. Today, we continue our review of a conde world in upheaval, this time with a focus on splitters and exports.