Meanwhile, U.S. producers have asked the Commerce Department to declassify condensate as crude oil.
In further solving for getting growing U.S. oil production to market, midstream and downstream operators have announced new, Gulf Coast, condensate splitters totaling more than 400,000 barrels of daily capacity.
Scott Sheffield, chairman and chief executive of Pioneer Natural Resources Co., which is bringing online Eagle Ford condensate from South Texas, said, in a presentation in Houston in March, that new U.S. oil production of some 8.1 million barrels a day includes some 800,000 barrels of condensate.
Currently, the U.S. Commerce Department defines condensate, which has a gravity of 60 degrees API from the Eagle Ford formation, as crude oil, thus it cannot be exported. U.S. producers have asked it to reconsider the definition, as condensate is natural gas while still in the ground; in the past, the categorization had not been an issue while the U.S. refining slate had sufficient capacity for processing U.S.-produced, light-gravity, oil and condensate.
The splitter solution changes the condensate into liquid petroleum gas, naphtha, jet, diesel and gasoil, a refinery feedstock, thus into “refined” products by Commerce Department definition and, thus, it can be exported.
“(Some) 400,000 barrels a day of condensate splitters have been announced,” Sheffield said at the IPAA’s OGIS conference in April in New York. “Some will be built; some won’t, depending on the Commerce Department’s decision on condensate.”
He added that “hydro-skimmers” are being discussed as well, which are slightly more sophisticated than the splitter process. Independent producers may joint-venture with refiners as another solution, he said, but “I hope that doesn’t happen. That is a worst-case scenario.”
The U.S. exported 4.3 million barrels a day of oil byproducts in December, according to a U.S. Energy Information Administration report this week in which it added that it was “the first time exports exceeded 4 million barrels per day in a single month.”
FBR Capital Markets & Co. securities analyst Benjamin Salisbury reports that 400,000 barrels of daily condensate-splitter capacity is estimated to require an investment of about $1.5 billion. “Not only could reclassification (by the Commerce Department) undermine these domestic investments, it could also have a chilling impact on light-oil distillation-capacity additions, which have a longer payback period,” he says.
Targa Resource Partners LP plans a splitter at Channelview, Texas, along the Houston Ship Channel with initial capacity of 35,000 barrels per day at a cost of $115 million with a long-term contract with Noble Americas Corp.
Ethan Bellamy, a securities analyst with Robert W. Baird & Co., reports, “The announcement follows a string of recent Gulf Coast condensate-splitter-project announcements, including Kinder Morgan (Energy Partners LP)—two 50,000-barrel-per-day splitters online in the second-half of this year and first half of 2015—Magellan Midstream (Partners LP)—50,000