Light Ends / Light Ends Space-- A New Term (At Least For Me) -- June 5, 2016

Updates

June 12, 2016: this is pretty cool. As noted below, when I googled this term just a few days ago there were five hits. Today, googling "light-ends oil" there were 131,000 hits. Of the 131,000 hits, my post was #14, near the top of the second page. Whoopee. 

 

Original Post

 

There is an incredible amount of information in this paper. I've read the introduction and the conclusion; scanned the information in between. The information "in between" will remain a great reference. 

This link takes you to a "working paper" out of Rice University's Baker Institute for Public Policy, titled "Childhood's End: Developing Asian Giants and the Future of Global Oil Demand." It is dated 2016. A quick look at the paper suggests that Prince Salman is thinking along the same lines.

However, there is a new term -- that's probably been around for decades -- but I just stumbled across it and will come back to it later.

The term is "light ends" or "light ends space." A google search "'light ends space' oil 'natural gas'" led to only five hits, and one of them was a "linked in" hit.

By the way, this subject ("light ends space") and the "working paper" linked above seem, at first glance, to dovetail well with the very astute observation made by Don regarding "gasoline production" numbers, which is noted at length in the "update" at this post. 

Wow, if I miss one day of blogging, I fall behind.

**************************************

A New Term

The link above takes you to a linked "working document" authored by Al Troner. His thesis/article is featured in this month's issue of the Oil & Gas Journal, which requires a subscription. [Update: it looks like one can get to the entire article by googling "'light ends' oil". Here's the link: http://www.ogj.com/articles/print/volume-114/issue-6/general-interest/surge-in-ngl-and-tight-oil-supplies-creates-worldwide-light-ends-space.html.]

Putting "2" and "2" together, it appears that Al Troner, Asia Pacific Energy Consulting, Houston, has not necessarily coined a new term but will do much to put it the term in the everyday lexicon of those of us who follow the oil and gas industry.

I'm pretty jazzed, to say the least, to have come across this. It will be interesting to see where this leads.

The article begins:

While many analysts agree that oversupply, rather than weak demand, led to the current slump in the price of crude oil, few have looked closely at the nature of that supply overhang.

In a new study, Asia Pacific Energy Consulting (APEC) has examined in depth the role of NGLs, in particular condensate, in creating the current surplus, as well as the impact of tight oil and its light derivatives. The condensate, other NGLS (LPG and ethane), light products, and tight oil yeilding much of the new light-product supply all occupy the same light segment of the hydrocarbon spectrum.

The shale revolution has spurred a ballooning of NGL output, paralleled by dizzying growth in tight oil production. Almost all of this incremental liquids production has been light and sweet. The growing volume of this material, with incremental supply in the millions of barrels per day, has begun to shift pricing, trade, marketing, and supply-demand balances for crude -- light-heavy vs sweet-sour --- and in our products, with notable supply gains in LPG, gasoline, and naphtha in contrast to middle-barrel and heavy products.

A "light-ends space" is emerging, not only in the US and the Atlantic Bais but also globally, as markets attempt to adjust to this surge in light, low-sulfur hydrocarbon supply.

**************************************

A New Term: Light-Ends Space

NGLs: Definition

The article focused on the role of condensate as the spearhead creating the light-ends space.

Why? Because condensate is the only NGL that does not need specialized containment and that, when refined, yields a full range of products, from LPG to residual.

Where? Bakken, Eagle Ford, and the Permian.

Facts about condensate:

• once condensate becomes a liquid, it remains a liquid
• in a refinery or condensate splitter, it acts much like crude in the slate
• often confused with light, sweet crude oil but it has distinctive characteristics
• unlike crude oil, condensate always originates with gas, whether nonassociated or associated
• whole condensate almost always yields more than 50% naphtha; and is almost always quite clean, low not only in sulfur but also in metals and acid
• condensates are exceptionally clear, most containing 0.3% sulfur or less

More facts about condensate:

• most observers try to define condensate by setting an arbitrary API gravity breakpoint
• in the US commonly 45 degrees API
• international trade, usually 50 degrees API

But rules are made to be broken

• there are some crude condensates well above 50 degrees API; e.g., Saudi Arabia's Super Light and Australia's Laminaria
• there are some crude condensates below 50 degrees API; e.g., Kazakhstan's Karachaganak and Nigerian Oso
• in definition, what constitutes condensate, API gravity is only a general indicator, not an exact test of what is condensate and what is crude

Bottom line: what makes a condensate a condensate

• always originates in gas
• almost always yields 50%+ naphtha
• is exceptionally sweet
• contains little if any metals
• produces little residual oil
• a crude and condensate can have exactly the same API gravity but the condensate will always yield far more naphtha and far less fuel oil

The US and condensates?

• the US has emerged as a major NGL power due to the shale revolution
• despite recent events (2016), overall NGL output will continue to rise despite declining condensate volumes produced with tight oil (EIA)

Why?

• NGLs are caught in a twilight zone: NGLs come from both the crude and gas sides of total production
• while condensate has been the most prominent NGL derived from gas produced in association with tight oil, plays such as the Eagle Ford shale; Permian basins also have produced sizable volumes of LPG and even commercial volumes of ethane
• yet NGLs also come from primarily non-associated gas production as well, such as the Marcellus and Utica shales

*****************************

Notes From a Working Paper

Six chapters:

• Chapter 1: Introduction
• Chapter 2: Asia Pacific Demand Growth: Demand Growth by Sector
• Chapter 3: Recent Developments in Middle-Distillate Retail Price Subsidies
• Chapter 4: Asia Pacific: Comparing Light-Ends and Middle Distillate Growth
• Chapter 5: Product Quality Premiums
• Chapter 6: Conclusion

Chapter 1, Thesis: 

• Asia Pacific will remain the engine of world oil demand growth
• but future growth will be at a lower rate of expansion
• in addition, future demand will shift away from mid-barrel to light-ends products, such as LPG, gasoline, and naphtha
• bad news: US oil exporters will not get the growth they saw 1990 - 2000, or even 2000 - 2010
• Asia has begun to exhibit characteristics of more mature economies
• good news: Asia Pacific will likely continue to lead world oil demand growth for the remainder of this decade and the next (through 2030)
• the growth will be greatest in the light end of the barrel
• the working paper focuses on China, India, and Indonesia

Chapter 1.  Introduction

Sections A - H: 

• historical review

Section I: US exports -- a natural fit. 

• the growing Asian demand for light ends has coincided with the shale revolution in the UNITED States and a massive influx of sweet, light crude and NGLs onto the US market. With a crude export ban n place, the US had to focus on exporting light refined products and NGLs. 
• But, since late December 2015, the paradigm has shifted.
• Asia Pacific wants to end dependence on Mideast; long term trend: North America will compete with Mideast for demand growth in Asia Pacific
• US West Coast geographically closer to Asia Pacific
• but US Gulf Coast has a substantial edge in almost every other export factor: 
• relatively easy permitting process for building infrastructure; 
• a greater number of sophisticated refineries with more capacity
• proximity to two of the three largest tight oil basins: Eagle Ford and the Permian
• the Panama Canal serves as an enabler -- it puts the USGC close enough to compete with Mideast sales on the basis of different price formulae
• the author talks about the Panama Canal, saying the same thing RBN Energy has already talked about: the revamped canal will allow transit of all LNG tankers, except the two largest, the Q-Max and the Q-Flex; in other words, the Panama Canal can handle 90% of the world's LNG fleet
• the canal's expansion will be finished in 2017; already talking about further expansion

Section J: Export Opportunities  

• lower growth
• light-ends focus
• Panama Canal changes everything
• powered by the shale revolution -- and an easing of export regulations -- NGL producers responded quickly to marketing in Asia

Section K: Linked Lines of Query

• overall demand growth; changes in sector use
• deregulation and retain subsidies; impact of mid-distillate demand growth
• for Asia Pacific, it's all about naphtha; Asia is structurally depended on naphtha imports
• price deregulation has accelerated the use of light product over middle distillates; most fully achieved in Indonesia; to a lesser extent in Thailand, Malaysia, and Vietnam; we will know more about India by the end of the year; Asia Pacific is switching from diesel to gasoline; naphtha will dominate the petrochemical feedstock supply but naphtha is also required as the basestock for gasoline manufacturing
• future comparative growth rates
• impact of product quality in maturing Asian economies

Chapter 2. Asia Pacific Demand Gowth: Demand Growth by Sector

A. Asia Pacific

1. Basic Parameters of Demand 

2. Demand Trends by Product & Sector: this is a very, very interesting section; the author talks about a breakout point, "when expanding middle class incomes all for the possibility of acquiring private transport." This has recently been discussed on the blog. A reader personally noted this in India. 

B. Developing Asia

1. China: section on gasoline demand is very, very interesting

2. India: 

3. Indonesia:

C. NIC/Near-NIC Asia

1. Taiwan

2. Singapore

3. Hong Kong -- China, Special Administrative Region (SAR)

D. OECD Asia Pacific

1. Japan

2. South Korea

Chapter 3. Recent Developments in Middle-Distillate Retail Price Subsidies

A. China

1. EIA viewpoint

2. Managed float; indirect subsidies?

3. The 2013 reforms

4. Free market fears

5. Lagging prices; refinery investment

6. Guaranteed margins; pass-on

7. Consumption taxes/value added tax (VAT)

8. Last word

B. India

1. Gas oil / diesel vs gasoline subsidies

2. The burden

3. A look at LPG

4. Kerosene corundum (sic)

5. Taxes

C. Indonesia

1. Subsidy reform

2. The reform program

3. Pending reforms

D. Survey of other major gas oil / diesel market countries

1. Malaysia

2. Thailand

Chapter 4. Asia Pacific: Comparing Light-Ends and Middle Distillate Growth

A. Analysis Drivers -- Light-End Products

1. LPG

2. Gasoline

3. Naphtha

B. Analysis Drivers -- Mid-Barrel Products

1. Kerosene

2. Gas oil / ADO

C. Forecast/Outlook - By sector: Demand Giants vs West

1. Sector focus on transport and petrochemicals

2. Comparison of Growth Rates in OECD vs NIC/Near NIC vs Developing Asia Giants

3. What prospects should US exporters watch for?

Chapter 5. Product Quality Premiums

A. The Nature of tightening product specifications: One-directional, progressively cumulative, and irreversible 

B. Product premiums yet to justify high-cost, high-quality investment -- why?

1. Quality and refining

2. Quality and gas-to-liquids (GTL) plants

C. How long will it take for maturing developing Asia quality standards to catch up with OECD and NIC levels?

D. What marketing parameters should US exporters follow in selling products based on quality?

Chapter 6. Conclusions