ANALYSIS - Approval of Resource Export Licenses Could Open U.S. Light Crudes to the Global Market: EAI, Inc.

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EAI, Inc. Explores the Implications for North American Light Crude, Condensate Market Dynamics, and the Export Ban

The Bureau of Industry and Security (BIS), an agency of the Department of Commerce (DOC), issued approval of licenses for Enterprise Product Partners LP and Pioneer Natural Resources Co. to export ultra-light oil under the condition of it being minimally processed. This could mark the starting point for a wave of additional license approvals allowing the export of ultra-light crude or condensate to foreign markets. The Commerce Department’s issue of licenses is a private process and information filed and reviewed by them is held in confidence.

From the hearings and numerous follow-up discussions that have taken place, it appears that the suitable feedstock defined in these proceedings is likely to be condensate. In the upstream business, the word condensate has generally been used to define a mixture of hydrocarbons that exists in a gaseous state in an underground reservoir but condenses under atmospheric pressure and room temperature conditions.

The minimum level processing that is likely to be required includes condensate stream stabilization with inclusion of distillation. The stabilization process requirement could further limit available condensate for export in areas like the Eagle Ford if not all units in the field are of the appropriate design. At the present time, this is an area that needs further clarification to determine whether it is a limiting factor on available condensate products for export.

Defining Condensate Supply and What Might be Available for Export

EAI, Inc. recently completed a major industry study “North American Condensate Supply, Logistics, and Market Outlook 2014” sizing up the outlook for condensate and related light stream production as well as market outlets and pricing for these streams. Total condensate production in the U.S. is approaching 900 MBPD based on hydrocarbon production having an API gravity greater than or equal to 45. EAI, Inc. analyzed grade distribution across all the light crude/condensate plays as part of the North American Condensate study.

The most significant condensate bearing production area in the U.S. is the Eagle Ford. The condensate portion of the Eagle Ford play (production having an API gravity of at least 45) represents approximately 27 percent of total Eagle Ford production. This represents approximately 350 MBPD of production. The amount that is amenable to being segregated and employs the proper stabilization process (to qualify as an exportable product, although this area is still not clear) is currently no higher than the 200 to 300 MBPD range.

Condensate Surplus in Sync with Saturation of the North American Light Crude Market

North American light crude market saturation and timing is projected to move somewhat in concert with growing condensate surplus. The majority of higher API gravity condensate material produced in North America is currently blended with heavier crudes to increase the value realized for the condensate streams and/or due to logistical and facility limitations in segregating the condensate streams.

The effective U.S. Gulf Coast condensate surplus is likely to be in the range of 750 to 1100 MBPD by 2018 and as high as 1700 MBPD given a strengthening of natural gas prices and more drilling in the gas-light liquids prone area of the Eagle Ford and other gas prone basins.

The surplus is estimated by EAI, Inc. based on a Gulf Coast naphtha balance outlook with inclusion of all crude supply and conversion of the excess naphtha to an effective condensate volume based on a representative naphtha yield on crude/condensate supply. This surplus and increasing downward pressure on light crude/condensate pricing is projected to be more acute beginning in 2016 as detailed in EAI, Inc.’s North American Condensate study.

Pricing and Netback Value Implications

In the short term, with the U.S. Gulf Coast nearing saturation running light crudes, there is likely to be a moderate ramp-up of condensate and/or condensate derivatives exports in response to condensate price discounts and higher value naphtha chemical markets and condensate markets overseas. The available and approved export volume will be limited given the license qualification requirements, rate of licenses being issued and qualified production stream availability.

Eagle Ford condensate posted prices have been declining in response to the Gulf Coast market saturation. Discounts for Eagle Ford condensate (60-plus API range) versus WTI field prices increased from 5.60 in June of 2012 to 9.00 dollars per barrel ($/BBL) in January of 2014 and 11.60 $/BBL in June 2014. For Eagle Ford condensate in the 50 to 60 API gravity range, these discounts declined from -0.87 $/BBL in January 2012 to 6.60 $/BBL in June 2014. These discounts are based on the respective crudes laid into the Houston market.    

With respect to global condensate netbacks and the incentive to export Eagle Ford condensate to foreign markets, there is upside for true condensate (60 gravity and higher). The global condensate market, represented by Qatar Low Sulfur Condensate (LSC with API gravity of 58) netback to Houston compared to Eagle Ford streams laid into Houston (inclusive of trucking and pipeline costs), indicates that margins (Qatar LSC netback minus laid in EF streams to Houston) have increased from 7.85 $/BBL in June, 2012 to 15.25 $/BBL in June, 2014.

The same margin estimates for 50 to 60 API gravity API and less-than-50 API Eagle Ford streams yield margins of 10.25 $/BBL and 8.75 $/BBL, respectively. The Qatar LSC stream is certainly higher gravity than most of the Eagle Ford production as stated previously.

The Diluent Market

Longer term, relaxation of the crude oil export ban could also have implications for the diluent market for bitumen blending. Opening up global market access to U.S. condensate will impact the price structure for Canadian diluent with global supply and U.S. supply sources driven by similar market dynamics. The relative economics of raw and rail-bit versus dil-bit could also be impacted with potentially higher costs for U.S. condensate.

Bitumen blending opportunities in the U.S. Gulf Coast for the foreign offshore export market could also increase the value of the U.S. Gulf Coast as a destination for Canadian bitumen. EAI, Inc. has analyzed the Canadian diluent market as part of its North American Crude Supply, Logistics, Refining and Price Outlook 2014 study.

Read more about EAI, Inc.'s North American Condensate Study at:

About EAI, Inc. (Energy Analysts International)

EAI Inc. (Energy Analysts International) is an energy consulting firm offering leading edge industry studies, products and services is headquartered in Westminster, Colorado. EAI, Inc. has worked with a wide range of companies including international energy firms, independent refiners, resource development firms, investment institutions, marketing companies and retailers, transportation companies and government agencies for over thirty years offering industry expertise across a variety of business areas and segments at the global, regional, asset and resource level of detail.

To learn more about this study and other informational products, please contact EAI, Inc. at +1.303.469.5115, or visit

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Joseph Leto
EAI, Inc.
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