Production of lease condensate at the wellhead and plant condensate from processing natural gas liquids (NGLs) has increased rapidly in the Ohio Utica over the past two years. Timely investment by local refiner Marathon and infrastructure developments to ship condensate to Gulf Coast refiners have proved the primary market for Utica condensate so far. The proximity of the region to diluent pipelines to Canada has also prompted infrastructure projects. Today we describe projects to deliver condensate to Alberta.
This blog continues analysis we initiated back in May looking at growing production of lease condensate in the liquids window of the Utica in Ohio (see Give A Little Bit). Utica condensate production is projected by the Energy Information Administration (EIA) Drilling Productivity Report to reach 66 Mb/d by July 2015. Production of plant condensate (aka, natural gasoline or pentane-plus) from natural gas processing plants in the northeast (many in the liquids rich Ohio Utica) is expected to be close to 50 Mb/d by the end of 2015. Midstream companies are investing in new infrastructure to transport these condensate range materials to market. Our earlier analysis covered plans by the area’s largest refiner, Marathon Petroleum Company, to increase their consumption of condensate and light crude by bringing two new condensate splitters online and increasing light crude processing capacity at their Robinson, IL refinery. Marathon’s logistics subsidiary, MPLX is building the 180 Mb/d Cornerstone pipeline – due online by the end of 2016 that will carry lease and plant condensate to several Midwest refineries. Another popular route to market is by barge on the Ohio River. MPLX is shipping condensate down the Ohio River to their Catlettsburg refinery in Kentucky. Refineries in the Louisiana Gulf Coast region are also receiving Utica condensate by barge via the Ohio and Mississippi Rivers. At least 4 barge terminals in Ohio and West Virginia are delivering these supplies. This time we look at plans to ship Utica condensate to Canada for use as diluent.
The diluent market is one of the most significant sources of demand for condensate. Diluent range light hydrocarbon materials such as plant and lease condensate are used to reduce the viscosity of heavy Canadian crudes (primarily bitumen from the Alberta oil sands) so that it can flow in pipelines. Based on a requirement to blend about 28% diluent with each bitumen barrel, Canadian demand was about 380 Mb/d in 2014 (source: CERI). Roughly 160 Mb/d of that requirement was met from local production in Canada - leaving a shortfall of 220 Mb/d that came from the U.S. Given the choice, Canadian producers prefer to use plant condensate or natural gasoline as diluent rather than lease condensate because the former has a more stable specification. EIA export data shows an average of 168 Mb/d of plant condensate (identified as pentanes plus) exported to Canada in 2014. For the most part then, demand for diluent imports to Canada will be met by plant condensate. Even though lower crude prices have reduced investment in new projects – the recent forecast from the Canadian Association of Petroleum Producers (CAPP) indicates that oil sands production will continue to increase much in line with previous expectations at least through 2020 (see You Can Leave Your CAPP Off). As a result Canada’s diluent import requirement will likely increase over the next five years. And that demand could increase further if homegrown Canadian condensate production from the Montney and Duvernay shale plays does not expand as rapidly as previously expected (see Pembina’s Canadian Diluent Hub) – in part because of a glut of unwanted NGLs such as propane in Western Canada (see Nowhere to Run Nowhere to Hide). In terms of Utica liquids production, the Canadian diluent market represents a growing opportunity for plant condensate to compete with alternate sources from the Gulf Coast (i.e. Mont Belvieu) that are a lot further away from Canada than Ohio.