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Faded Love - Condensates after Lifting of the Crude Export Ban - Still Being Whipsawed

“Condensates are long and you can’t give them away … No, things have changed – condensate supply is tight and prices are running up relative to WTI … But wait wait, the oversupply is back and prices are down again.” No wonder the market’s love for condensates has faded.  It’s a liquid hydrocarbon that is being buffeted by every force the market can bring to bear: declining production, lots of new committed infrastructure (stabilizers, pipelines, and splitters), wide-open export markets, volatile crack spread splitter economics -- the list goes on. Adding to this whirlwind is the fact that historically there has been limited analytical data to work with, with most condensate information buried deep inside crude production numbers from producer investor presentations and less-than-revealing Energy Information Administration (EIA) crude oil reports.  But we have some new tools to help understand what’s going on, including the EIA’s new 914 crude quality data and condensate export numbers from ClipperData.  Today, we continue our exploration of rapidly evolving condensate markets.

In Part 1 of Faded Love we revisited RBN condensate classics, including Fifty Shades of Condensates and Like A Box of Chocolates.  We showed that while condensates are produced from all of the major basins across the U.S., the Eagle Ford in South Texas has been responsible for most of the production growth over the past five years, and how the Eagle Ford has been hit harder by low crude prices than any of the other major shale plays, resulting in declines in condensate production.  We then touched on the splitters built to process condensates in the U.S. and on other infrastructure to handle segregated processed condensate for export – now no longer required since the lifting of the crude/condensate export ban.  With the ban gone, there’s no longer anything special about a condensate barrel; it is just like any other crude oil, except lighter.  These developments have converged to create a topsy-turvy market for condensates, where both opportunities and dangers lurk for those brave enough to buy, sell and trade condensate barrels.

What’s going on now?  First of all, condensate production is down.  If we define condensate as crude oil with 50 degrees American Petroleum Institute (API) gravity or greater (see Fifty Shades), EIA’s new 914 data (discussed in more detail below) shows U.S. condensate production in March (2016) at 967 Mb/d, which is 10% or 106 Mb/d below the level of production in January 2015 (1,073 Mb/d).  More significantly, Texas condensate production (mostly Eagle Ford) was down 171 Mb/d over the same time period; the Lone Star State’s decline was partially offset by increases in condensate production in Colorado and Ohio.

Figure 1 provides more detail about what has been happening lately.  The graph on the left shows EIA U.S. crude oil production volumes by API gravity category calculated using the new 914 survey data (data published yesterday, 5/31/16).  Note that heavy crude with an API of 30 degrees or lower (mostly from California and offshore Gulf of Mexico, or GOM) represents about 15% of the total (black bars).  The biggest chunk is crude with an API of between 30.1 and 45 degrees (gray bar segments and light blue bar segments); it accounts for 61% of all production.  (For reference, West Texas Intermediate (WTI) crude oil is supposed to have an API gravity of 39.6, with an API range in the CME/NYMEX futures delivery contract of 37 to 42. Very light crude with an API gravity between 45.1-50 represents about 12% (orange bars). That leaves material generally classified as condensate (50.1-55 API gravity) with 5% (green bar segments) and super-light condensates greater than 55 at 6% (dark blue bar segments).   While the graphic helps put condensate volumes in perspective relative to total crude/condensate production, the scale of the graph can’t show in sufficient detail what has been happening to condensate volumes.  The graph on the right provides that view.

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