The US administration's move to ease decades-old restrictions on condensate exports could be a boon for domestic producers seeking better margins for rising light crude from shale fields like the Eagle Ford in Texas.
But it has negative implications for US refiners who have struggled to digest an ever-lighter domestic feedstock stream and could scupper about 500,000 b/d of splitters and other investments made to boost light processing capacity.
The Commerce Department's Bureau of Industry and Security (BIS) has approved plans by Pioneer Natural Resources and Enterprise Products Partners to export Eagle Ford condensate that has undergone light processing in distillation towers.
Other US onshore drillers are eyeing how this will impact their operations. UK-Australian resources company BHP Billiton said it welcomed the decision and "will consider marketing opportunities that may apply to our condensate production in the Eagle Ford and Permian basin."
The finding raises "new questions about the viability of billions of dollars of midstream-player announced condensate splitter and hydroskimming units and pre-flash towers," according to Barclays. But two midstream companies planning Gulf coast splitters -- Magellan Midstream Partners and Kinder Morgan – say they plan to go ahead with their projects.
"We have a long term contract in place for our current splitter units, and we continue to move forward with its construction," Kinder Morgan said. The company is opening in November the first phase of a 100,000 b/d splitter project near Galena Park, Texas, that is backed by a long-term contract with BP.
Magellan said its' planned 50,000 b/d splitter in Corpus Christi, Texas, should not be affected by the ruling. The BIS' findings could work in the favor of the company, which has Eagle Ford and Corpus Christi pipeline and terminal infrastructure, Magellan said. If the ruling incentivizes producers to boost condensate production, shipments could climb on Magellan's Double Eagle pipeline system, which carries the liquid from the Eagle Ford to Corpus Christi.
"With the terminal's multiple existing ship berths that can accommodate large vessels, we are positioned to serve the export market if it develops," Magellan said.
Magellan's splitter is backed by a take-or-pay agreement with Trafigura and is set to come online in the second half of 2016. The majority of the $250mn investment will go towards adding storage and dock improvements at its Corpus Christi terminal, the company added. Trafigura said its Gulf coast docking and ship capacity will position it to benefit whether export restrictions are relaxed or not.
Splitters are simple distillation towers that process condensates into light straight-run products, mostly naphtha. They allow operators to circumvent the export ban by minimally distilling the condensate into exportable product.
That could provide a valuable outlet for a feedstock unattractive to US Gulf coast refiners. Condensate mixing in traditional crude streams has disrupted operations at Valero's refineries in Ardmore, Oklahoma, and McKee, Texas. While Valero has plans in 2015 to increase crude topping capacity at its 200,000 b/d Corpus Christi and 95,000 b/d Three Rivers refineries in Texas near Eagle Ford production, the facilities will still run crude, not condensate.
Refiner interest in splitters, meanwhile, may face new pressure. Valero in May considered condensate discounts too poor to warrant capital investment in the Gulf coast, though was considering a facility in the Permian basin.
Phillips 66 has considered a condensate splitter project along the Gulf coast, and particularly at its 247,000 b/d refinery and petrochemical complex in Sweeny. The company also sees opportunities in building infrastructure to move condensate or NGLs.
The company in May said economics for lightly processed condensate exported out of the Gulf coast did not make sense. The feedstock was more valuable processed into feedstock for Gulf coast refineries, the company said at the time. Phillips 66 had begun preliminary engineering for the splitter but it remained in very early stages, the company said yesterday.
Marathon saw little risk to its own plans to add condensate splitters at its 78,000 b/d Canton and 240,000 b/d Catlettsburg refineries in the midcontinent by 50,000 b/d.
Marathon chief executive Gary Heminger earlier this spring said condensate exports pose little threat to those facilities, which will finish construction by the end of this year at Canton and in the first half of 2015 at Catlettsburg. The facilities would run Utica and Marcellus condensate production, which are unlikely to find an international market.
"I don't see that the Utica and Marcellus really tee up that well for export," Heminger said in May.
Marathon Petroleum yesterday said many questions remain on the definition and demand for lightly processed condensate exports, rather than those processed through splitters. But its outlook had not changed.
"We do not anticipate that we will have stranded capital as a result of this, as we have a transportation advantage based upon where the condensate is produced in the Midwest and where we are able to fully process it into finished products at these nearby refineries," it said.
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