30-second sound bite: I think my thoughts on the Keystone XL are very, very wrong. Maybe a stand-alone post on that if I get caught up.
Background: what makes wet gas wet?
There is a series of articles -- three, to be exact -- on condensates appearing on the web.
The series (linked below) is targeted for investors. Disclaimer: my blog is not an investment site. Do not make any investment decisions based on what you read here. These articles are linked because they help me understand the Bakken.
The author is a typical "newsletter" type-of-guy, but better than many, I suppose. He provides readers with lots of interesting "information" and then requires a paid subscription "for the rest of the story."
[Another "Condensate 101" course was posted in mid-January, 2013, and might be a better place to start before reading the series of stories coming up.]
The first at Oil & Gas Investments.
The second at Oil & Gas Investments.
The third, in SeekingAlpha.
The lede from the first article:
Condensate prices in Canada are soaring—now sitting some $14/barrel ABOVE WTI—making it the most valuable Canadian energy product.
It’s creating huge profits for the lucky few natural gas producers who have large condensate volumes in their production stream.Condensate is both a heavy natural gas liquid (NGL), and a super light oil, making it very versatile.
In Canada it’s used to dilute heavy oil from the oilsands, and fast increasing production there is driving condensate demand—and prices.Canadian production of condensate is flat, which is bullish in the face of oilsands growth.Note: he says Canadian condensates are priced at $14 above WTI. If true, I would assume pricing is similar for Bakken condensate.
From that same article:
From the Eagle Ford shale in Texas to the Bakken shale in North Dakota and up to the Montney shale in northern BC, oil and gas shales are producing major volumes of condensate.Some data points from the second article:
In the United States, all this condensate is almost a problem. US refiners spent billions of dollars over the last decade to process more heavy oil. As a result they can’t really handle this light stuff.
In the oil sands, condensate is used as a diluent to ‘thin down’ bitumen – a thick, sludgy substance – so it will flow through pipelines. Since bitumen production is climbing steadily, condensate demand is on the rise. Supply is struggling to keep up.And finally, the third article, at his website, I suppose, but also in SeekingAlpha, as linked above.
Canada now uses some 275,000 barrels of condensate per day as diluent. Canadian producers churn out 165,000 barrels per day (bpd), meaning oil sands operators already rely on imports to fill a 110,000-bpd gap.
Some data points:
The reason condensate is king in Canada is that oil sands producers need piles of this light oil to dilute their heavy bitumen for transport, and Canadian production can't keep up with demand.
Half of America's refineries lie along the Gulf Coast. With the ability to process 8 million barrels of crude oil every day, this industrial complex truly sets the tone for oil pricing across the country. And guess what? Gulf Coast refineries don't like condensate.
Refineries are picky beasts, each one only able to process crudes within a particular API range. The Gulf Coast army of refineries used to love light oil, but over the last 25 years the world burned through many of its high-quality deposits of light crude. That forced producers to shift towards heavier and sourer crudes. [This is why I believe my thoughts on the Keystone Xl are very, very wrong.]
The only way to feed condensate into these medium and heavy oil refineries is to mix the light oil with a heavier crude to produce a mid-weight blend. But even that is not ideal, because it turns out a mixture of heavy oil and condensate does not produce the same products as a straight crude of similar weight.
Canada needs condensate. US producers are flooded with the stuff and want to sell it to Canadian oil sands operators. The challenge is moving it.
The only pipeline currently moving condensate from the US into Canada is Enbridge's Southern Lights line, which runs from Illinois to Edmonton. It can move 180,000 barrels per day, which can more than handle the 110,000 bpd of condensate being imported now and Enbridge is proposing an expansion.And more:
The hard part, the bottleneck, is getting it to Patoka, where it can enter Southern Lights. Patoka, it turns out, is not particularly close to the biggest condensate-producing shale in the US, which is the Eagle Ford basin in Texas.
There are ways. For example, Plains All American is using the Louisiana port of St. James as a staging post to route Eagle Ford condensate into the Capline pipeline for shipment to Patoka.
Others are using existing gathering networks to move condensate to Corpus Christi on the Texas Gulf Coast, where it is loaded onto barges and transported to St. James. Magellan Midstream Partners and Copano Energy are taking this one step further, extending one of Copano's pipes by 140 miles to Corpus Christi. That line should soon be moving 100,000 barrels of condensate a day.
Wonder if oneok could use their Bakken express plans, reverse it, and extend it into. Canada .
ReplyDeleteVery, very, very interesting! Best comment of the week, perhaps. I had not thought of that. Very interesting. And that's why I love to blog -- one never knows what might pop up.
DeleteBut if another reader is correct, that Canadian bitumen is "almost endless" and that the writer of the 3-part series above is correct that Canada is desperately short of diluent, ONEOK may surprise us, yet.
Thank you for taking time to comment.
With the energy revolution our country and Canada are in it means many of the old assumptions about energy availability have been proven wrong. With all the money invested in this old falsehood it will take a lot effort and education to change or reverse those prevailing ideas like we live in a world of very limited resources and have to manage our decline for that is the fate of humanity.
ReplyDeleteThe truth is the world is richly blessed with resources and they are to be used by mankind so it can prosper. By use I mean the responsible good stewardship use of our resources. Denying or severely limiting use of resources is not stewardship. It is an assault on human development all disguised as a hyper-sensitive concern for the environment.
Now this country is at a point where it should no longer believe a lot of those old falsehoods like running out of natural gas that coursed the building of LNG import ports along with the belief oil production was in permanent decline. The new technology that has been applied to the development of conventional oil and gas sources of energy from unconventional tight rock formation is an undeniable reality today. The severally indoctrinated to those old falsehood will never change their belief we just have to keep them from doing damage to human development.
Our country along with Canada are way out front in this new way of energy development. It looks like the rest of the world will have great difficulty development of their own vast shale energy resources. Politics and believing old falsehoods seem to have a stronger grip with them and that is to their disadvantage.
There will be a lot of changes to come to our existing energy structure, all the way from the wellhead to the consumers use. It is a challenging and exciting time that has the potential of being a job creator no government program could even come close to matching.
You are absolutely correct: the gap between the US and Europe in energy will widen -- France will never frack their Paris Basin, as just one example.
ReplyDeleteIf one thinks the infrastructure is a challenge in North Dakota, imagine the infrastructure in place in remote China where they think they have shale oil.
I have posted a number of stories regarding North America's energy advantage -- Germany shipping iron ore to the states to manufacture steel, and then shipping the steel back to Germany for specialty steel, is one great example. That's how cheap our energy is right now, compared to Germany. And Germany seems to be the only country on the European continent that might have an economic chance to compete with China and North America going forward.