AFPM’s Drevna says more clarity needed on future condensate exports

The oil and gas industry awaits greater clarification from the US Department of Commerce’s Bureau of Industry and Security (BIS), which recently issued private rulings for two companies concerning condensate specifications and possible exports.

Charles T. Drevna, president of American Fuel & Petrochemical Manufacturers, told OGJ that the market “tremendously overreacted” during June 25 trading after what he called some erroneous news reports that the BIS rulings implied a loosening of the longstanding US ban on crude oil exports.

Even though Commerce officials emphasized that there was no change in policy, stock prices declined during June 25 trading for some refiners including HollyFrontier, Valero, Marathon Petroleum Corp., and Phillips 66.

“The floodgates are not opening up to export crude,” Drevna said. “I don’t even see any condensates [from the BIS rulings] leaving the US for a while.”

Pioneer Natural Resources and Enterprise Product Partners had requested private rulings. Pioneer asked whether its South Texas Eagle Ford condensate qualified as being processed and was eligible for export without a special license (OGJ Online, June 25, 2014).

“When you start talking condensate, definitions vary,” Drevna said. “Producers are going to Commerce to see if they have a product that qualifies for export.”

He expects more producers will request similar private rulings, which are considered to be confidential and for which few details are made public.

Drevna believes Commerce will have to define specifically what qualifies as condensate. US unconventional plays have yielded a glut of light oil and condensate that Gulf Coast refineries, configured primarily to run heavy crudes, have been unable to process without plant modifications.

But Drevna warned that it would be wrong to assume US refineries cannot take any more light, sweet crude.

“We are adaptable creatures, we can adjust,” Drevna said of refiners. “Refineries don’t stay static, we adjust all the time.”

Pioneer elaborates

Currently, US crude exports are restricted and subject to licensing requirements under the Export Administration Regulations (EAR), which is administered by BIS. The EAR restrictions on crude exports do not apply to hydrocarbons that have been processed through a distillation unit, Pioneer said.

“The stabilization process at Pioneer’s Eagle Ford shale central gathering facilities involves a distillation unit that lowers vapor pressure and removes volatile lighter hydrocarbons,” the company said in a statement to OGJ.

Earlier this year, Pioneer met with BIS representatives and later filed a submission under BIS’s standard commodity classification process.

“BIS recently confirmed our interpretation that the distillation process by which our Eagle Ford shale condensate is stabilized is sufficient to qualify the resulting hydrocarbon stream as a processed petroleum product eligible for export without a license,” Pioneer said.

Pioneer is one of the largest producers in the Eagle Ford with net production of more than 43,000 boe/d.

“A large proportion of Pioneer’s production in the Eagle Ford shale is condensate, an ultralight hydrocarbon generally characterized as having an API gravity of 50° or higher,” the company said. “This condensate is stabilized in central gathering facilities to meet industry standards for safe storage and transportation.”

Questions linger

John Auers, a consultant with Turner, Mason & Co. of Dallas, said the BIS rulings constituted a broader definition of distillation than many in industry assumed.

“We always knew that if it ran through a distillation unit or a splitter, it’s a product. This just moved it one step down,” if a stabilizer tower in the field counts as processing eligible for export, Auers said.

He said the private ruling could derail some plans for splitters that turn condensates into naphthas, especially proposed splitters that have yet to receive financing and for which construction has not started. “It changes the plans,” Auers told OGJ in a phone interview on June 30. He also noted that BIS could provide more elaboration in the future that might change his initial interpretation of the ruling.

Warren Russell and Michael Cohen of Barclays Capital Inc. issued a June 27 research note saying much uncertainty remains about the BIS commodity classification and its implications for other producers. They said most of industry considers oil above 45° API as being condensate.

“According to the Energy Information Administration, the Gulf Coast region, which includes the Eagle Ford, makes up roughly half the total 45° API production and is arguably the most viable source for exports due to its proximity to the coast,” Russell and Cohen said.

“Condensate production from this region, which should grow by 125,000 b/d to 815,000 b/d in 2014, could potentially be exported if run through the same stabilization process that Pioneer described and if the trade makes economic sense,” they said.

But they also noted that not all 815,000 b/d would be available for potential export because US demand exists for condensate for use in splitters and for blending.

“It is apparent, however, that producers see opportunities in the export market. Depending on where arbitrage opportunities exist, this condensate could find a home in Asia and potentially Europe, where petrochemical demand continues to increase,” the Barclays research note said.

Wood Mackenzie analyst Afolabi Ogunnaike in Houston said he believes Latin America and Europe are the most likely buyers for US condensate exports. Ogunnaike told OGJ that Asia buyers are possible for US condensate but that transportation costs to Asia would be higher than to Latin America and Europe.

Contact Paula Dittrick at paulad@ogjonline.com.

Related Articles

Obama makes Alaska’s Bristol Bay off-limits for oil, gas activity

12/17/2014 US President Barack Obama placed Bristol Bay off-limits for future oil and gas leasing, extending a temporary withdrawal he imposed in 2010 that wa...

Severance tax would backfire, Pennsylvania association leaders warn

12/17/2014 Enacting a severance tax aimed at Pennsylvania’s unconventional natural gas activity would substantially harm the commonwealth beyond the industry ...

New York state moves to ban hydraulic fracturing

12/17/2014 High-volume hydraulic fracturing will be banned in the state of New York, Gov. Andrew Cuomo’s administration announced Dec. 17, citing health risks...

Cooper to buy 50% of offshore Gippsland Sole gas field

12/17/2014 Cooper Energy Ltd., Adelaide, has bought a 50% interest in the offshore Gippsland Sole dry gas field in retention lease Vic/RL3 as well as 50% of t...

MARKET WATCH: Oil prices held steady on NYMEX awaiting crude inventory

12/17/2014 Oil prices held fairly steady on the New York market in Dec. 16 trading while Brent crude oil prices fell by more than $1/bbl on the London market....

BPC report examines 40 possible options to reform RFS

12/16/2014 The Bipartisan Policy Center issued a report outlining 40 possible options for reforming the federal Renewable Fuels Standard in an effort to move ...

Turkish refinery secures Canadian financing

12/16/2014 Export Development Canada (EDC) said it is participating as lead arranger in the $3.3 billion debt-financing consortium supporting STAR Rafineri AS...

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

Cenovus trims budget, slows oil sands work

12/16/2014 Cenovus Energy Inc., Calgary, is trimming its capital spending in response to declining crude oil prices and will slow development of some of its t...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected