A lot of electrons are running around the Internet analyzing the June 25, 2014 Wall Street Journal news flash that the U.S. Department of Commerce (DoC) is allowing Pioneer Natural Resources (PXD) and Enterprise Products (EPP) to export condensate to countries outside North America. (Federal law allows exports of all hydrocarbons produced in the United States to Canada.)
Today brings news that around 750,000 bpd of condensate is available for export. Since the US price per barrel of condensate is up to $20 less than global price, US producers are losing out on a lot of potential revenue.
The DoC has not defined “condensate” so it’s not clear what chemical composition threshold is required for product to be exportable beyond Canada. The private letter ruling simply agrees that the way PXD and EPP runs produced condensate through a stabilizer and distillation tower qualify as refining, and therefore the end product is considered refined and therefore exportable.
While some speculative fever was unleashed by the news, the longer term analysis has asked more questions than given answers. Given the dollar value of hydrocarbons potentially affected by the ruling, thought leaders in the O&G community are spending serious think time on the issue.
What data would be useful for this analysis? Hydrocarbon traders need real time data showing total flow from well to end user to make informed investment decisions. Public records are maintained showing crude oil and natural gas liquid production with high API gravity. Public records also show where this production is located within economic transportation radius to distillation towers that are also within economic transportation radius to a water port.
Analysts studying the changed condensate market should examine production near distillation towers that export qualified condensate into the global water-borne trade beyond Canada. Looking at the correlation between these production values and condensate traded products could drive these markets much as the Baltic Dry Index drives shipping rates.
Currently there are at least 6 condensate products are traded; CRW, CPR, CRL, SLD, CPM and CFT. If these markets are affected by the newly opened global market for US produced condensate, then studying relevant production could provide traders a competitive advantage.
Analysts should also consider production near stabilizers. While the DoC has not yet allowed condensate simply run through a stabilizer to be exported, public policy logic suggests the definition of refined product should extend to stabilized condensate.
Stabilizers also merit attention in light of recent regulatory pressure to limit railing of crude containing volatile high ends. Stabilizer infrastructure is scant in the Bakken but plentiful in the Eagle Ford. The twin regulatory change of relaxed restrictions on export of stabilized and distilled condensate and increased regulatory scrutiny of railed light crude not stabilized could redound to the benefit of Eagle Ford producers and to the detriment of Bakken producers.
For those curious about the last couple of points, Sandy Fielden at RBN has a great analysis of stabilizer capacity and export routes to market.
What do you think? What information are you looking for about condensate and the opening market? Leave a comment below.