Analysis by Poten & Partners
In June of this year two American companies, Enterprise Product Partners and Pioneer Natural Resources, received permission to export slightly treated condensates from the United States. According to Poten & Partners, American oil producers and shipowners have become excited about the potential of a significant new export trade out of the United States. Will this be the opportunity that tanker owners have been waiting for?
Lets take a step back. What are condensates exactly? Condensates are liquids that are separated from natural gas during production and stabilization processes.
Condensates have been around for a long time and, like oil, are transported worldwide on tankers. About 40% of the worlds production (estimated to be around 6 million barrels/day) is exported as condensates and an additional 35% is mixed into crude streams. Major exporters of condensates are Qatar, Australia, Iran and Indonesia. IEA forecasts that global field condensate production will grow to 7.1 mb/d in 2019, mainly due to production growth in the US and Australia. Condensates are typically transported on Aframax vessels, but smaller vessels are also commonly used.
A number of the US shale fields, especially Eagle Ford, produce significant amounts of field condensates. Eagle Ford field condensate production, currently stands at about 0.5 mb/d is expected to double by 2020.
The situation for US condensates is somewhat complicated for two reasons: (1) In the United States condensates are considered a crude oil, and (2) Crude oil exports are banned in the United States.
Canada is exempt from the US crude oil export ban. It is importing condensates from the US to use as diluent for heavy Canadian crude so it can be easily pumped through pipelines. The use of diluents is expected to grow as Canadian production increases and more crude oil pipelines become available.
Processed oil products such as gasoline and diesel can be legally exported from the US, however and these exports have grown significantly in the last 5 years. The $64,000 question for condensates exports is: How muchprocessing is required for condensates to be considered an oil product, rather than crude oil? Not surprisingly, opinions vary on this.
Since Enterprise and Pioneer, no additional exports licenses have been granted as politicians have challenged the legality of these export permits and now all new permits are on hold. Players are awaiting clarification of the definition whether its a crude or a product, but a decision is not expected for at least 6 months.
While increased exports of condensates from the US to Asia would be a boost for long haul tanker demand, it is unlikely that significant exports will materialize anytime soon.
Source: Poten & Partners