Like a Box of Chocolates The Condensate Dilemma 3rd Annual NGLs Forum E. Russell Braziel RBN Energy, LLC September 23, 2013
Tsunami of Condensates Mb/d 1,600 1,400 1,200 1,000 800 600 400 200 0» Historically U.S. condensate production has been the backwater of liquid hydrocarbons markets, with most condensate blended off into crude» Shale has changed that, doubling condensate production since 2011» Growing volumes of light crude oil and condensate will back natural gasoline out of the refinery motor gasoline blend pool» Both condensate and natural gasoline will increasingly be forced into Canadian and overseas export markets.» Except that condensates are classified as crude oil and can t be exported overseas without an (unobtainable) license from the Bureau of Industry and Security Source: EIA /RBN 2
The Condensate Family C5 Natural Gasoline Plant Condensate Pentanes Plus Field Condensates Naphtha Lease Condensate 3
What Defines a Field Condensate? Where it Comes From?» Exits the wellhead as a gas, condenses to a liquid at atmospheric pressure and temperature» Frequently the liquid output from a stabilizer Its Characteristics?» Is light liquid hydrocarbon as measured by API gravity» There is no standard cut point that separates condensate from crude oil (45? 50? 55? degrees API) EIA Definitions?» Most EIA statistics call it crude; Condensate is included in FERC crude oil statistics» Field condensate production statistics are estimates 4
Stabilizers Traditional Stabilizer Multiphase Hydrocarbon Stabilizer 5
Multiphase Hydrocarbon Stabilizer Expansion Source: Exterran 6
N. Gasoline/Condensate/Pentane+/Naphtha Lease Condensate Exports Field Stabilization Condensate Splitter Blended into Crude Oil & Gasoline Blendstock Natural Gasoline / Plant Cond. Naphtha Imports Petro Chemical Canadian Bitumen Diluent Overseas Exports 7
Natural Gasoline Production/Price 380 360 340 Gas Plant Production 290 270 WTI Mont Belvieu C5+ 320 250 Mb/d 300 280 260 240 220 200 c/gal 230 210 190 170 150 Source: OPIS/EIA 8
C5+ Demand From Petchems Cents per Pound 60 50 40 30 20 10 0 Ethylene Production Margins Ethane Propane N. Gasoline (Naphtha) Mb/d 500 450 400 350 300 250 200 150 100 50 0 Naphtha and Natural Gasoline *YTD Sept. 2013 Source: RBN/Hodson 9
Relative Nat. Gasoline & Condensate Pricing 120 Nat. Gasoline vs. Crude 105 Condensate vs. Nat. Gasoline 110 100 100 95 90 EF above MB C5+ $/BBl 90 80 70 60 Mont Belvieu Nat. Gasoline LLS @ St. James, LA WTI @ Cushing, OK $/BBl 85 80 75 70 65 Mont Belvieu Nat. Gasoline EF Condensate EF below MB C5+ 10
Natural Gasoline Exports /Total Diluent Mb/d 400 350 300 250 200 150 100 50 0 Gas Plant N. Gasoline (Pentanes+) Exported U.S. Mb/d 250 200 150 100 50 0 Total Diluent Supply Other Diluent Imports N. Gasoline Exports Source: EIA /RBN 11
Field Condensate: Market Geography 1. Eagle Ford Production 5 2. Permian Production 3. Corpus to Gulf Coast Marine Transport 2 4. Permian and Eagle Ford Pipeline Transport 5. Capline/Explorer to Southern Lights and Cochin 1 4 3 12
Eagle Ford Crude and Condensate Mb/d 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0» Eagle Ford crude and condensate share take away infrastructure» Condensates above 50 degrees API make up about 45% of Eagle Ford production» In total, the region has surplus take away capacity» Quality determines availability of takeaway capacity for specific grades Crude Supply Condensate Supply Take Away Capacity 13
Crude/condensate volumes through Corpus Christi terminals have grown from 7 MB/d to 390 MB/d in less than 2 years 400 350 300 250 Corpus Christi Crude/Condensate Export Volumes Mb/d 200 150 100 50 0 Source: Port of Corpus 14
Corpus Christi Volumes Moving to Houston, LOOP, Beaumont/Port Arthur, Freeport/TX City Other 19% Houston 25% August 2013 outbound volumes from the greater Corpus Christi area: ~500 MB/d Freeport/Texas City 19% Beaumont /Port Arthur 15% Morgan City 22% Corpus Christi Houston Texas City Freeport ` Mobile Bay LOOP (Morgan City) 15
The Problem for Natural Gasoline Plentiful Light Sweet Shale Crudes Natural Gasoline Cheap Condensates Gulf Coast Refineries More Naphtha Range Material in the Motor Gasoline Blend Components Blend Pool Motor Gasoline Market 16
Huge Increase in Exports Required to Keep U.S. Natural Gasoline Market Balanced Mb/d 600 500 400 300 200 100 Gas Plant Supply Imports Petchem Demand Renewable Fuel Refinery Demand Exports» N. Gasoline blending demand falls dramatically from 160 Mb/d to 40 Mb/d due to influx of light sweet crude, condensates, diluent recycle & Tier 3 sulfur regs» N. Gasoline barrels available for export increase from 170 Mb/d to 435 Mb/d, split between Canadian and overseas 0 Source: EIA /RBN 17
Gulf Coast Natural Gasoline Exports Mb/d 140 120 100 80 60 40 20» Natural gasoline available for overseas exports increases from 3 Mb/d in 2012 to 120 Mb/d in 2018» Primary drivers are increased condensates and light crudes in the gasoline pool + Tier 3 Motor Gasoline regulations in 2017 18 Source: EIA /RBN 18
Condensates Will Be Exported in the form of Gasoline and Naphtha Products 1,200 800 400 MBPD 0 400 800 1,200 U.S. Net Product Export Forecast Gasoline Distillate» Field condensates are considered crude oil and cannot be exported under current regulations unless processed» Surplus naphtha range material will be exported in the form of motor gasoline» Condensate splitter light and heavy naphtha product from the Kinder Morgan s Galena Park facility may also be exported Source: Turner Mason /RBN 19
Conclusions U.S. Condensate Market» Condensate supplies from U.S. shale plays are growing rapidly, particularly from the Eagle Ford» Natural gas plant production of natural gasoline is adding to the oversupply» Demand for condensate range material in the motor gasoline blend pool is declining, as is the use of naphthas and natural gasoline as petrochemical feedstocks» The demand for condensates and natural gasoline as diluent for Canadian bitumen is growing, but not as fast as the supply of those products» Quality variations in condensate production will result in price discounts» The oversupply of naphtha range material in the refinery blend pool will push natural gasoline into Canadian and overseas export markets and drive increases in motor gasoline exports 20
Why Does Natural Gasoline Production fall Decline each Winter? Mb/d 380 360 340 320 300 280 260 240 220 200 Natural Gasoline Production Rich Gas to Gas Plant More C5s go overhead in hot weather Condensate More C5s go to condensate in winter 21
http://www.rbnenergy.com/daily energy post E. Russell Braziel 2323 S. Shepherd Drive., Suite 1010 Houston, TX 77019 rbraziel@rbnenergy.com @rustybraziel 22