Condensate: Could There Be A Shortage? Not A Pretty Picture For Splitters Along The Coast; Did They Overbuild? -- RBN Energy, July 2, 2015: Part II

Active rigs:

	7/2/2015	07/02/2014	07/02/2013	07/02/2012	07/02/2011
Active Rigs	75	190	192	215	172

RBN Energy: Will There be Enough Supply For Gulf Coast Condensate Splitters?

Over 400 Mb/d of Gulf Coast condensate splitter projects could be online by the end of 2016. These splitters will compete for condensate feedstock with local refineries in the Eagle Ford able to process 475 Mb/d of light crude and condensate. Another 700 Mb/d of stabilization capacity in the Eagle Ford could be used to process condensate for export. But with low crude prices stalling production growth, splitter economics could suffer if demand exceeds supply and condensate prices increase as a result. Today we conclude our update on Gulf Coast splitters.

There is no question that processing and distribution of ultra-light crude and natural gas liquids (NGL) materials known as condensate continues to be a focus for midstream infrastructure investment. We have previously provided several explanations of the range of different condensate materials being produced from oil and gas wells in the shale era. 

Earlier this week we looked at plans to move plant condensate (that is extracted from the gas liquids stream by gas processors) from the Ohio Utica to Western Canada as diluent.

This blog series is about splitters that process lease condensate (that condenses into a liquid at the wellhead) at the Gulf Coast. In Episode 1 we described the market for lease condensate from the South Texas Eagle Ford that is too light for most Gulf Coast refiners to process in significant volumes without changes to their configurations. With growing supplies available from the Eagle Ford, one solution is to process condensate in a splitter – a form of simple refinery.  We walked through the list of 7 brand new condensate splitter projects that were proposed to that end between 2012 and 2014 by various midstream companies.

Then in 2014 the rules of the game abruptly changed when the Bureau of Industry and Security (BIS) clarified decades old export regulations to allow the export of lightly processed condensate.

That caused some splitter projects to be put on hold as producers reevaluated their commitments to these relatively expensive investments versus just stabilizing condensate for export. At the same time the most recent Energy Information Administration (EIA) Drilling Productivity Report (DPR) data suggests that Eagle Ford crude and condensate production could be declining in the wake of lower drilling budgets after the price crash.

In Episode 2 we looked at two new project announcements for condensate processing at Corpus Christi (one of which – from Cheniere - that company has now confirmed will not be a splitter) and reviewed splitter economics showing that while a hypothetical splitter yield would have been more profitable in 2015 than 2014, the margins are much lower than for full refineries and rely on a wide spread between condensate prices and regular crude. This time we look at how the supply demand balance for condensate at the Gulf Coast is likely to impact splitter economics.