Bureau of Industry and Security

Natural gas producers are probably turning green with envy: Processed condensate exports out of the US Gulf are strong and getting stronger. Since the Department of Commerce threw the doors open to the export of lightly processed condensate, new loading points have emerged, new target markets have been found, and more companies have become involved. Today we describe how attention is now turning from regulatory and logistical issues to the challenge of finding buyers.

The Plains All American (PAA) Cactus Pipeline comes online in the West Texas Permian this month (April 2015). Cactus will bring up to 250 Mb/d of crude and condensate from Midland and McCamey in the Permian to Gardendale, TX - the heart of the Eagle Ford shale – linking the two basins for the first time by pipeline.  It also forms a major component of an expanded pipeline and dock infrastructure owned by a combination of PAA and Enterprise Product Partners (EPD) set to deliver as much as 600 Mb/d of crude and condensate to Corpus Christi and 470 Mb/d to Houston by the end of 2015. Today we describe how a good deal of those deliveries will be processed condensate eligible for export.

At the end of last year the Department of Commerce Bureau of Industry and Security (BIS) issued clarifications designed to clear the way for greater U.S. exports of processed condensate. More companies have received BIS approvals to export – the latest being Plains All American last Thursday. Last year expectations were that as much as 230 Mb/d would be shipped in 2015. But narrowing price differentials have reduced the arbitrage necessary to make exports economic. Nevertheless midstream companies continue to invest in infrastructure to deliver processed condensate to marine docks. Today we review the state of the export market and ongoing infrastructure plans.

Last week’s clarification from the Bureau of Industry and Security (BIS) about the process required to export lease condensate may make exports easier on paper but it won’t stimulate export demand. The BIS move is timely because available exports of this light hydrocarbon material could increase significantly, depending on what happens to crude prices. However current low price levels and questions about future overseas demand could diminish the significance of the BIS process improvements. Today we describe the BIS clarifications and whether they are likely to make a difference.

Last week Eagle Ford producer BHP Billiton – apparently tired of waiting for a ruling from the Department of Commerce Bureau of Industry and Security (BIS) – decided to export a cargo of processed condensate that they have “self-classified” as refined product – meaning it is not subject to U.S. export restrictions on lease condensate and crude oil. That move followed BIS approval for Enterprise and Pioneer to make similar exports in July 2014 and could set off a posse of similar condensate exports by Eagle Ford producers.  Today we review new market options for condensate producers.

After a WSJ story broke in late June that the Commerce Department’s Bureau of Industry and Security (BIS) had permitted the export of condensates by Enterprise and Pioneer, a good number of additional export requests were received by the agency.  Then a couple of weeks ago, Reuters reported that the BIS had put a “hold” on the approval of any more requests, implying that potential condensate exports were in limbo.  Turns out, as we understand it, there is no limbo – it is nothing more than an administrative process that takes time for any of these requests while the applicant is providing additional supporting information that the BIS requires.   There has also been misunderstanding in the industry about the process of receiving BIS approval for exports.  But in fact, approval is a fairly straight forward process of having BIS agree that your product should be classified as something designated EAR99 and assigned a CCATS number – for Common Classification Automatic Tracking System.  Today we explore this process and what it takes to get condensates approved for export.

Recent rumors coming out of Washington DC suggest that changes to US regulations that severely limit exports of US crudes are being discussed with a view to changes – perhaps even repeal. One idea that keeps popping up is a change to allow the export of lighter hydrocarbons that have a high API Gravity (above 55 or some other number), classified by the US rules as crude, but known to the rest of the world as condensate. Allowing the export of such field condensates could alleviate an oversupply glut of these lighter hydrocarbons that US refineries are not best configured to process. Today we ponder the impact of an end to the prohibition of condensate exports.