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Page added on June 28, 2014

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Half-Million Oil Barrels Daily May Meet New Export Class

Public Policy

As many as 500,000 barrels of light oil a day may be eligible for export under a new government classification, helping to soak up surging U.S. shale oil production.

Pioneer Natural Resources Ltd. (PXD) and Enterprise Products Partners LP (EPD) said this week that the Commerce Department approved their plans to export some ultra-light crude, known as condensate, heated in stabilizers and distillation towers. Stabilization is far less complex than the processing of oil at refineries or at condensate splitters, which separate several gases and other products from crude.

Significant oil exports would help relieve a glut of oil on the Gulf Coast, where inventories rose to record levels this spring as production reached the highest since 1986. That could narrow the discount for U.S. oil relative to the rest of the world, weakening an advantage that U.S. refiners have enjoyed since 2011.

“Condensate exports could narrow the gap between U.S. and international refining margins,” Warren Russell, a New York-based analyst for Barclays PLC, said yesterday in a research note.

U.S. benchmark West Texas Intermediate crude has averaged a $7.96 a barrel discount to European Brent crude, the international marker.

Stabilizing Capacity

There may be more than 1 million barrels a day of condensate-stabilizing capacity in U.S. oil fields, said Jeff Stake, director of sales for Odessa, Texas-based Allied Equipment Inc. Allied has manufactured and sold stabilizers that can process about 200,000 barrels a day, Stake said.

More than 90 percent of condensate that moves through stabilizers is processed in adjacent distillation towers, said Bill Bowers, vice president of production equipment for Houston-based Valerus, which manufactures and installs the systems.

Crude oil that has been processed through a distillation tower, resulting in petroleum products, is no longer crude and can be exported without a license, Jim Hock, a Commerce Department spokesman, said June 24 in a written statement. The U.S. prohibits most exports of unprocessed crude.

Stabilizers, which are located at gathering facilities in production fields, boil off the most volatile compounds, leaving behind ultra-light oil that is safe to transport or store. Some volume is lost in the process. About 500,000 barrels a day of crude is churned out from stabilizers and distillation towers daily, Stake said.

Individual units can handle from 500 barrels a day to 50,000, said Nader Khaki, director of sales and engineering for SouthTex Treaters Inc. SouthTex has sold 500,000 barrels a day of total stabilizing capacity, including at least one unit to a producer in Colombia, Khaki said.

Different Distributions

Crude oil is a complex mixture of different kinds of hydrocarbons that, when heated, separate into a gas at different temperatures.

“It’s everything from small particles like ethane and propane to more viscous material that will eventually be made into asphalt,” said Dennis Sutton, president of the Crude Oil Quality Association. “The difference is just in the distribution.”

Theoretically, any kind of oil could be passed through a stabilizer, said Bowers of Valerus. Lighter crudes processed in stabilizers with distillation equipment can produce gases at lower temperatures, while heavier oils moved through the same systems may result in much less gas, Bowers said.

Heavier Oil

If the Commerce Department requires significant amounts of light products to be removed, heavier oil would need temperatures more than twice as high to generate those products, Bowers said. “It’s probably not going to be economic and before long you’re spending so much that you might as well refine it.”

About 750,000 barrels of condensate are produced from U.S. shale plays daily, said Michael Wojciechowski, head of Americas downstream research for Wood Mackenzie Ltd. The U.S. will produce about 650,000 barrels a day this year of the lightest classification of crude oil, the Energy Information Administration estimated in a May report.

U.S. crude production has boomed in recent years, spurred by horizontal drilling and hydraulic fracturing in shale plays. Output has risen 46 percent since the start of 2012 to nearly 8.5 million barrels a day.

Stabilizing is widespread in several shale plays, including the Williston Basin in North Dakota, the Permian in West Texas and the Utica in Ohio, Stake said. It’s most prevalent in the Eagle Ford, home to some of the lightest crude in the U.S.

“The new light hydrocarbons that come from all of the shale production, for the most part those are candidates for needing stabilization,” Bowers said.

bloomberg



15 Comments on "Half-Million Oil Barrels Daily May Meet New Export Class"

  1. Davy, Hermann, MO on Sat, 28th Jun 2014 6:39 am 

    I understand from Rock this was already happening with waivers. I also understand from Short the condensate have little market because of their limited application in industrial processes already well supplied.

  2. eugene on Sat, 28th Jun 2014 8:11 am 

    If I understand correctly, this is the stuff that wasn’t called “oil” before and isn’t the best of “oil”. Not prime material for the world market but we gotta do something with it. Plus makes great PR for the “ain’t we wonderful” crowd.

  3. rockman on Sat, 28th Jun 2014 9:10 am 

    First, the condensate in question is oil and is very much desired by refineries designed to crack it. It can be made into the same products as oil heavier then 40 API. There are 45 API “condensate” that can produce better profit margins then 35 API “crude oils”. Which is why eastern Canadian refineries pay to ship it half way around the country to get to them.

    More important the gov’t clarified that they approved exports that were already legal. All the gov’t said was that these companies were in compliance with the rules that have been in place since the ban was initiated decades ago.

    Simply the Eagle Ford production is run thru a simple and cheap upgraders converting it to exportable “product”. Just like the 20+ million bbls of EFS production that has already been exported.

    Nothing new here…move along. Just the MSM hyping a non-story. LOL.

  4. Davy on Sat, 28th Jun 2014 9:40 am 

    Thanks Rock for setting me streight.

  5. Nony on Sat, 28th Jun 2014 9:50 am 

    Big drop in refiner share prices for a non-event. Disagree with Rock’s comment. It’s great to have him around, but you should question everything and not just trust him because he’s an old salt.

  6. GregT on Sat, 28th Jun 2014 10:44 am 

    “It’s great to have him around, but you should question everything and not just trust him because he’s an old salt.”

    Well thanks Nony,

    Personally, I’ll take Rock’s wisdom and experience as an ‘old salt’, long before listening to your childish and foolish exuberance.

  7. rollin on Sat, 28th Jun 2014 11:32 am 

    Interpret stabilize as increasing the flashpoint by removing methane and ethane and a few light components such as propane and butane.

    We have been exporting finished product for a long time now and importing products also. Nothing new here, just a way to deal with the necessities of the system and properties of the raw crude.

  8. Pops on Sat, 28th Jun 2014 12:04 pm 

    This is new.

    The “condensate” produced at natural gas plants has never been banned from export. To say this is more of the same I think is wrong.

    The condensate that happens at the well, “field condensate,” has been banned from export since the ’70s. I posted a link in the forum showing that field condensate has increased from about 200k to over a million bpd of condensate in the last few years. That field condensate is what this is about, the stuff that was once part of the “crude oil stream.”

    Prior to the fracking boom it was a smaller number but since fracking is like squeezing out turnip blood through a sieve, there is a higher proportion of condensate now. Westexas has commented on the fact that much of the US oil boom is condensate rather than “oil.”

    Some discussion,
    http://peakoil.com/forums/us-condensate-exports-begin-t69903.html

  9. shortonoil on Sat, 28th Jun 2014 1:15 pm 

    Condensate is primarily pentane (C5H12), with maybe as much as 5% of other compounds thrown in (butane, hexane, propane). What it is named depends on its source:

    1) pentane from production wells is called “field condensate” and is often processed through a field stabilizer.

    2) pentane from NG plants (the heavies in NG) is called “natural gasoline”, or “pentanes plus”

    3) pentane from the refining process is called “light naphtha”

    As a result of shale production, condensate (pentane) production has risen from about 3% of US production to about 17%. It has little value, except as a feed stock for other chemical processes, so its primary market has been as a diluent for bitumen to produce dilbit, the dumb bell crude. Condensate can be reconfigured through a splitter into other more useful products. The catch here is that the processing is very energy intensive, and only marginally effective with about a 35% yield.

    Marathon, and Velario are building condensate splitters (which are a type of mini refinery, only costing $200 million apiece). Condensate splitters reconfigure field condensate into other fractions:

    Output …………%yield
    LPG……………3
    Naphtha……….60
    Jet fuel………12
    Gasoil………..20
    Fuel Oil……….3

    The EIA classifies all liquid hydrocarbons as “crude”. Pentane certainly fits into this classification. The exception is Canada were most condensate has been going. If companies were shipping condensate to other nations without a permit they were breaking the law.

    About half of US LTO is now condensate, and about half of it is now going to Canada. With the Canadians on the verge of being able to produce their own condensate (see The Duvenary, A Game Changer) in the forums, there will be little market in the US. If the shale industry can not sell its condensate it can not survive! Export is probably now the only market, how well world condensate prices will hold up with a flood coming from the US is the real question?

    http://www.thehillsgroup.org/

  10. rockman on Sat, 28th Jun 2014 3:03 pm 

    Here’s the full article about the gross misrepresentation of the “lifting of the ban” story:
    http://www.downstreamtoday.com/news/article.aspx?a_id=43658

    FYI: every ounce of the 1.4 million bbls per day of Eagle Ford production anticipated for July can be exported under the existing law. It requires but two things to happen. First, the expansion of the relatively inexpensive upgrader systems. This is already well under way. Second, enough foreign buyers, such as the eastern Canadian refiners are doing now to the tune of almost 20 million bbls/year, who will outbid US buyers for the EFS “refined products”. Canadian refineries are importing U.S. oil at a soaring rate, bringing in crude at four times historic levels. Refineries in eastern Canada took in an average of 100,000 barrels a day of crude from the United States in the first three months of the year, up from a historic average of around 24,000 barrels a day, the U.S. Energy Information Administration reported this week.

    Here’s the words directly from the refineries in Newfoundland: “Our clean fuel Hydrocracker technology enables us to produce clean motor fuels from both medium grade crude and light crude, giving us the flexibility to refine crudes from many parts of the world, including the Middle East, the North Sea, and Texas.

    As far as the pentane et al in my production streams it’s collected at the well head with a JT plant or at the gas plant along with the other NGL. My condensate production isn’t. It’s sold at prices benchmarked to crude oil prices and is cracked to produce gasoline, diesel and other products just like heavier gravity oils. Some of my condensate has a higher gasoline yield then many Gulf Coast “oils”. Which is why I get a slight premium for my condensate over the LLS oil benchmark some months. Compared to many of the heavier and sulfur-rich oils which are more suited to make cheaper bunker fuel. Those oils are priced at a big discount to my condensates.

    I produce oil, condensate, NGL and NG. They are all distinct from each. Except not a great difference between oil and condensate. Most of my condensate is less the 8 degrees API higher then most would classify as oil. BTW some of my La production that they are classify as “condensate” would be classified in Texas as “oil”. Texas doesn’t distinguish between oil and condensate based upon API gravity. It’s done so based about reservoir dynamics. There is 42 API production in Texas classified as oil by the state and 38 API production classified as condensate. And as I’ve pointed out before the same production from a Texas well that was initially classified as condensate might be reclassified as oil late in its life when the reservoir dynamics change. Same API gravity and identical composition.

    Yes…Texas does confuse the story somewhat. LOL.

  11. rockman on Sat, 28th Jun 2014 3:34 pm 

    And crappy reporting from folks you would expect better from. Like John Kemp…a Reuters market analyst. His piece repeated in Downstream Today…an industry rag no less: “Condensate Ruling Makes Mockery of U.S. Oil Export Ban”.

    Sorry Johnboy. The only mockery might just be directed at you. But being a “market analyst” perhaps his background is economics. That would explain a lot. LOL.

  12. shortonoil on Sat, 28th Jun 2014 4:03 pm 

    Condensate is primarily pentane (C5H12), with maybe as much as 5% of other compounds thrown in (butane, hexane, propane). What it is named depends on its source:

    1) pentane from production wells is called “field condensate” and is often processed through a field stabilizer.

    2) pentane from NG plants (the heavies in NG) is called “natural gasoline”, or “pentanes plus”

    3) pentane from the refining process is called “light naphtha”

    As a result of shale production, condensate (pentane) production has risen from about 3% of US production to about 17%. It has little value, except as a feed stock for other chemical processes, so its primary market has been as a diluent for bitumen to produce dilbit, the dumb bell crude. Condensate can be reconfigured through a splitter into other more useful products. The catch here is that the processing is very energy intensive, and only marginally effective with about a 35% yield.

    Marathon, and Velario are building condensate splitters (which are a type of mini refinery, only costing $200 million apiece). Condensate splitters reconfigure field condensate into other fractions:

    Output …………%yield
    LPG……………3
    Naphtha……….60
    Jet fuel………12
    Gasoil………..20
    Fuel Oil……….3

    The EIA classifies all liquid hydrocarbons as “crude”. Field condensate certainly fits into this classification. The exception is Canada were most condensate has been going. If companies were shipping condensate to other nations without a permit they were breaking the law.

    About half of US LTO is now condensate, and about half of it is now going to Canada. With the Canadians on the verge of being able to produce their own condensate (see The Duvenary, A Game Changer) in the forums, there will be little market in the US. If the shale industry can not sell its condensate it can not survive! Export is probably now the only market, how well world condensate prices will hold up with a flood coming from the US is the real question?

    http://www.thehillsgroup.org/

  13. shortonoil on Sat, 28th Jun 2014 4:41 pm 

    Sorry hit the wrong button, double post.

    Rock, you are comparing apples and oranges. Field condensate is at least 95% pentane, by volume. Pentane has an API gravity of 92.7. Natural gasoline, and napthta have been exported since the beginning. They are processed crude, by EIA definition coming from a processing facility (an NG plant or refinery). Field condensate is produced world wide. There are several fields in Russia, Indonesia, Qatar, and many other areas. The only reason that prices are higher in the US is because of the demand from Canada. US producers will have to compete with sources from around the world, less the transportation differential. Plains All American discounts condensate at their Gulf Coast storage units by about $17.00/b over WTI. If 500,000 b/d hit the world market, prices will probably go a lot lower.

    http://www.paalp.com/fw/main/default.asp?DocID=1363

  14. J-Gav on Sat, 28th Jun 2014 5:02 pm 

    Interesting point (or two) Short.

  15. rockman on Sat, 28th Jun 2014 9:25 pm 

    Shorty – I’m not comparing anything to anything. I’m talking about the condensate production from the EFS. Here’s the breakdown: http://www.hydrocarbonprocessing.com/images/798/89779/Bryden-Tab-01.jpg

    The yields for EFS 41.9 API production: C5 (pentane) – 32%; kerosene – 14%; diesel – 25%; VGO (heavy oils) – 22%; residual heavy oil – 5%. By comparison the typical WTI and Bakken yields are 30% pentane. The diesel and heavier oil yields are also the same as the EFS production. La Light Sweet yields about half that much pentane and a bit more diesel and heavier stuff thus the higher price. The characteristic of all the other condensates, field condensates, lease condensates, NGL’s, etc. around the world are what they are. But I was talking about the condensate I produce and what they produce from the EFS. The EFS productions shipped to the eastern Canadian refineries, as the folks in Newfoundland point out, are being cracked into motor fuels. That’s all I was pointing out. Nothing more…nothing less.

    BTW the EIA defines lease condensate as pentane AND heavier hydrocarbons that “normally enters the crude oil stream after production”. But again, that wasn’t what I was talking about.

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