Over the past couple of years, Corpus Christi has emerged as an attractive refining and distribution hub for Eagle Ford and more recently Permian Basin crude oil and lease condensate. Despite Corpus’s promise, however, currently low commodity prices have made key players skittish about making long-term—and potentially costly—commitments to additional Permian-to-Corpus pipeline capacity, and to crude refining, condensate splitting and marine dock infrastructure investments in or near Corpus. Today, we begin a deep-dive into Corpus Christi-area crude- and condensate-related infrastructure and Corpus’s potential as an even bigger destination for Eagle Ford and Permian output.
Few would argue with Houston’s claim to be the capital of North American refining. As we detailed in our recent Drill Down report (for RBN Backstage Pass subscribers), Stairway to Houston—Infrastructure Response to Shale Era Crude Supply Transformation, the greater Houston area has nine refineries with a combined distillation capacity of about 2.5 MMb/d; two new condensate splitters (with capacities totaling 100 Mb/d); more than 40 MMBbl of oil storage capacity (increasing to more than 50 MBbl by the end of 2016); and world-class port facilities capable of both receiving large volumes of oil (imported and domestic) and sending out large volumes of crude (to other U.S. ports and to Canada) and processed condensate (to almost anywhere in the world). Just as important (and supportive of all the above), Houston is the hub of a multi-spoke pipeline network (much of it developed or repurposed over the past three or four years) that can receive lighter crude and condensate from the Permian Basin and the Eagle Ford, lighter crude from the Bakken and other U.S. shale regions, and heavy crude from western Canada. Parts of this same pipeline network can receive imported crude from Houston-area docks, or shuttle oil east to refineries in Port Arthur, TX. Lake Charles, LA and farther up the East Coast. In sum, the Houston area’s oil-related infrastructure is a formidable beast—one that (we must point out) still needs some expansion and tweaking to function more effectively.
Figure 1; Corpus Christi Ship Channel Infrastructure Source: RBN Energy (Click to Enlarge)
By comparison, the South Texas Port of Corpus Christi is no slouch, and has emerged as a critically important hub. Not only is Corpus close to (and well-connected by pipeline with) the Eagle Ford Basin and connected (albeit to a much lesser degree) with the Permian Basin, the city and its environs boast considerable crude/condensate storage, oil-refining and condensate splitting capacity (splitters are a simpler, less expensive type of refinery), as well as multiple midstream company marine docks (see the map in Figure 1--more detail on all this infrastructure later in the series). There are several reasons why Corpus has moved to the top tier. For one thing, Corpus is very close to the core Eagle Ford oil and condensate windows and midstream operators developed pipelines to deliver crude there early on. Longer pipelines to Houston were initially only connected to the eastern part of the play. Also, Houston-area refineries have had challenges absorbing typical daily pipeline shipment volumes of light Eagle Ford crude and condensate because they are not configured to absorb this quality of crude (again, see the Stairway to Houston Drill Down report). Smaller batches of crude (delivered to Houston and refineries along the eastern Gulf Coast by barge or tanker from Corpus) have proven easier to absorb. And finally, the main pipelines from the Eagle Ford to Houston early on encountered congestion issues in the Houston crude distribution system (now largely resolved) and did not provide shippers with the flexibility of easy access to the water.
With A Little Help From My Friends: Big Changes in Mexico / U.S. Energy Interactions
We have released our latest Drill-Down report for Backstage Pass subscribers describing the dramatic transformation in energy relations between the U.S. and Mexico in the past few years.
More information about With A Little Help From My Friends: Big Changes in Mexico / U.S. Energy Interactions here.
As we begin our look at Corpus Christi’s crude- and condensate-related infrastructure (soup-to-nuts—pipelines, refineries, splitters, marine docks, etc.), let’s first take a quick refresher course on what lease condensate is, and at Eagle Ford and Permian Basin production growth, productivity gains, and ever-changing rates of return. Lease condensate is a light liquid hydrocarbon, sometimes classified as an ultra-light form of crude oil, with an API degrees gravity level of 50 or more (some use a slightly higher or lower cut-off mark). Lease condensate, also called field condensate, is produced with natural gas and condenses into a liquid at surface temperature and pressure (see Like a Box of Chocolates—The Condensate Dilemma). Because lease condensate contains a lighter range of hydrocarbons it can be less desirable to Gulf Coast refineries configured to process heavier crudes. The inset graph in Figure 2 shows the prolific growth in crude and condensate production since 2007 in the three regions where most U.S. lease condensate is produced—the Permian (pink blob on the map in Figure 2), the Eagle Ford (blue blob) and the Utica/Marcellus (green blob). The graph insert shows combined light-crude/condensate production in the three regions.
Figure 2; Source: RBN Energy (Click to Enlarge)
Our focus in this blog series is on that part of Permian and the Eagle Ford production shipped to Houston or Corpus Christi (green arrows). Some Permian production also heads to the Cushing hub in Oklahoma (blue arrow). Note that a great deal of Permian production is also consumed by local refineries in West Texas (~400 Mb/d) and Eagle Ford crude is also consumed by small refineries in Nixon, San Antonio and Three Rivers, TX as well as three larger refineries in Corpus that between them consume about 400 Mb/d of the basin’s output (see Condensate City – Local Refineries) As the graph within Figure 2 shows, production of very light crude/condensate soared in the Eagle Ford (blue layer) between 2011 and April 2015 (to about 1.7 MMb/d) falling back to 1.5 MMb/d in September 2015 because of recent drilling pullbacks.
There are a number of possible routes to Gulf Coast markets for light crude/condensate out of the Eagle Ford and the Permian. Where pipeline-gathering systems are not yet built, the journey usually starts out by truck transport from the wellhead to the nearest pipeline or rail terminal. From there (as we said earlier) many barrels go to local refineries within the basins. Crude or condensate travelling outside the producing regions is usually moved by pipeline from the gathering terminal. Unlike more remote basins like the North Dakota Bakken where a lack of pipeline infrastructure led to the growth of crude-by-rail; the Eagle Ford already had a developed pipeline infrastructure in place when the shale boom began. As a result crude transport to major refining and distribution hubs such as Houston and Corpus were developed rapidly by repurposing or reversing existing pipelines. That has meant crude-by-rail transport has not been as widely used in the Eagle Ford. Most shipments are by pipeline to Corpus or Houston with many Corpus-bound barrels ending up at marine docks, where they are loaded onto barges or tankers.
Local refineries or condensate splitters process those barrels that do not hit the water in Corpus or Houston. Waterborne barrels are either moved domestically to refineries along the Texas or Louisiana Gulf Coast (occasionally up the East Coast as well) or are exported. Since crude exports are restricted by U.S. regulations only crude/condensate meeting specific processing or destination criteria can be exported. Exports of crude or condensate to Canada are generally permitted without limits. Exports of lightly processed condensate (that has been through a stabilizer with distillation capabilities) have also recently been permitted to other nations (see CCATS Scratch Fever). A third export possibility for Eagle Ford or Permian light crude is to be shipped to Mexico in a federally approved swap for heavy crude (see Have Another Swap). We will get into the various ways that condensate is treated separately by processors later in the series but here it is worth noting that a good proportion of condensate has been and will continue to be simply blended with heavier crude at gathering terminals or in pipelines such that it becomes a part of the crude stream – reflecting the fact that “regular” crude has historically had a higher value than condensate because (as we said earlier) Gulf Coast refineries are not configured to process such light crude.
In upcoming episodes in this series, we will consider the existing pipelines that move light crude/condensate out of the Eagle Ford and the Permian (and plans for new ones), as well as Corpus Christi-area refineries, splitters, stabilizers, and storage and dock facilities (again, existing and proposed). Finally, we’ll assess what effects the turmoil in energy markets may have on efforts by some midstream companies, refiners and others to make Corpus an even bigger player in the light crude/condensate world.
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