Last week (February 2013) EOG Resources told analysts that most Eagle Ford oil production should be classified as condensate rather than crude oil. They backed up their assertion with a chart of production quantity and API quality indicating 70 percent of production is condensate. Current forecasts indicate that translates to condensate production of over 500Mb/d in South Texas during 2013. Today we examine the evidence that EOG presented.Before reading the next excerpt, you may want to go back and read the posts regarding the current poll (gasoline prices and killing the Keystone XL).
What are the implications? First – as EOG implied on its earnings call – the returns for Eagle Ford condensate producers are likely to be lower than they would be if more of their production was crude. Second all the production from the Eagle Ford that makes its way to Gulf Coast refineries will be very light and will challenge refineries equipped to handle heavier crudes or even “conventional” light sweet crudes. In response to the light crude challenge refiners are already making new investments. In January 2013, Valero announced a refinery upgrade due online in 2015 at their 160 Mb/d Houston refinery to allow it to run additional light Eagle Ford crude. The refinery already runs light sweet crude but Valero is investing in a 90 Mb/d crude topper unit to separate out crude components that are too light before they enter the crude unit. Flint Hills is making a similar investment at their Corpus Christi refinery.
Under the circumstances the best market for US condensate today appears to be exporting it to Canada as diluent for heavy Canadian bitumen crude. That market is expanding with increased bitumen production but transporting enough condensate to meet Canadian demand requires new pipeline capacity – some of which is being built and some is of which is still waiting for permitting. We will look more closely at the Canadian diluent supply situation in an upcoming blog.
SeekingAlpha: increasing LNG exports -- a reality. A really nice update and overview of new LNG exporting facilities, from Richard Zeits.