splitter

A five-fold increase in crude oil production over the past three years has given the Eagle Ford basin an instant star on the shale walk of fame. Unlike other booming shale basins the Eagle Ford has not suffered from a lack of crude takeaway capacity. Instead it has suffered from the challenges presented by a high percentage of condensate output and varied crude quality. These challenges may be addressed by infrastructure and changes in the regulations surrounding export regulations. Today we introduce a new series updating our analysis of Eagle Ford infrastructure.

New and proposed projects to build condensate splitters along the Gulf Coast – including the first one due online at Kinder Morgan’s Galena Park facility in Houston this June, will output more than 60 percent naphtha. Unlike most refineries, stand-alone condensate splitters have little flexibility of feedstock or outputs so their economics rely on finding strong demand for naphtha. Today we discuss possible sources of naphtha demand.

Finding profitable markets for the rapidly increasing volumes of condensates produced in the Eagle Ford and other U.S. shale plays will be challenging. Sure there will be a growing Canadian need for condensates as a diluent for oil sands-derived bitumen, but that will still leave U.S condensate producers with a big surplus. The logical thing would be to look further afield, but selling to overseas markets— particularly to the growing Asia/Pacific region—is a complicated matter. First, an export license for “raw” (unprocessed) condensate to overseas markets is required, but no such licenses are being issued. Second, the Asia/Pacific region is also experiencing supply growth.

Last Thursday (May 16, 2013) the Ohio Department of Natural Resources offered a rare glimpse into 2012 production in the Utica shale. In a long awaited report, the State said that 87 wells drilled by 11 companies produced about 1750 b/d of oil and 35 MMcf/d of gas. Those numbers disappointed investors hoping for evidence of another Bakken or Eagle Ford. But the State data does not tell the whole story. There should be a surge in production now that infrastructure is coming online. And significant condensate production will present new challenges for midstreamers. Today we take a closer look at Utica production.

The surging production of condensate, or ultra-light crude oil, from America’s new shale-oil plays presents an opportunity that’s only just beginning to be recognized by much of the hydrocarbon market.  Historically U.S. condensates have been a tiny sliver of that market, usually blended into crude. Now there is just too much of the stuff, particularly in places that aren’t yet ready to process it in large quantities. In this next installment of Fifty Shades of Condensates we explore the constrained domestic demand for “raw” condensates at U.S. Gulf refineries and petrochemical plants, and the promising international outlets for condensate in Canada and Asia. Bottom line: unless the unlikely happens and the U.S. lifts restrictions on exporting “raw” condensate, producers, traders and other players will either be selling it here at a discount, or spending money to transform it to buy a little optionality. It’s all about spending the least they can to access pockets of demand, and first movers are already enjoying an advantage.

The new domestic energy rush has supplied North America with a potent new cocktail of hydrocarbons. Not only are we producing more oil and gas here than we have in decades, but we are producing more of certain kinds of hydrocarbons than North America’s existing energy infrastructure is built to handle.

We’re talking about the “C” word: Condensates. Today we introduce a blog series on condensates.

As RBN Energy explained last February (see “neither fish nor fowl”), condensates are a highly volatile hydrocarbon mixture that is classified somewhere between crude oil and natural gas liquids. Condensates are showing up in abundance both in new “wet gas” plays, where they drop down as liquids from gas streams during the field production process, and in oil shale plays, where condensate is part of the liquid coming straight out of a wellhead.