Upside Down - Why Condensate Flipped From Cheap to Pricey, And Why It May Flip Back

Through the first half of the 2010s, U.S. production of field condensate — the ultra-light liquid hydrocarbon that bridges the gap between superlight crude oil and heavier natural gas liquids like natural gasoline — more than doubled, peaking at about 640 Mb/d in early 2015. As condensate production ramped up in the Eagle Ford and other plays, conde prices were discounted to move the product, markets were developed to absorb the barrels, and infrastructure was built to move the conde to those markets. Then, in a dramatic turnaround that continued into 2017, condensate production fell by more than one-third, the new markets — splitters and exports — were starved for product, and conde prices flipped from discounts to premiums. But the market is shifting yet again. Conde production is once more on the rise, with the Eagle Ford rebounding and production rising in the star of the show in crude oil markets: the Permian. Today, we discuss highlights from RBN’s new Drill Down Report on the condensate market roller-coaster.

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.