Permian(Possibili-es:(Condensate(ExportMarkets(€¦ · Permian Condensate: Export Prospects !...

Permian Possibili-es: Condensate Export Markets

By Al Troner

ASIA PACIFIC ENERGY CONSULTING! Houston, Texas, USA

Phone: +1-‐281-‐759-‐4440 Email: [email protected]

Presentation July 2015 !

Permian Condensate: Export Prospects

Ø Permian Output will vary widely today Ø All agree it is big and getting bigger Ø Condensate projections even more

uncertain Ø Condensate is a Natural Gas Liquid (NGL) Ø Federal definitions muddy condensate

forecasts Ø Condensate output surging with other NGLs

1 ASIA PACIFIC ENERGY CONSULTING

US NGL Base Case Forecast Produc-on (Excl field cond.)


What is condensate?

Ø Liquid hydrocarbon molecules suspended in gas Ø Light & clean; produces 50%+ naphtha if whole Ø API alone (45 API+ US) is insufficient Ø As NGL it always originates in gas. Ø Associated or non-‐associated gas origin Ø No special containment; yields all products


Condensate in the US Market

Ø Field Condensate originates in associated gas Ø Plant Condensate is stripped from gas in plant Ø US: Field (Lease) Condensate as crude; no exports

Ø US: Plant (Natural Gasoline) as export product Ø The rules of the game change Ø Opening the door to the export of field condensate

* See Baker InsHtute Website, “NGLs in the Shale RevoluHon”


Opening the Door

Ø Bureau of Industry & Security (BIS) shi\s “processing”

Ø Includes stabiliza-on with minimal dis-lla-on Ø BIS: stabilizers “lightly process” condensate Ø As “processed” condensate was exportable Ø Peaker, Enterprise & Pioneer among the first OK’d

Ø Some 30+ firms can export; many “self-‐classified”


Permian Possibili-es

Ø Eagle Ford condensate gained more acen-on Ø Even low-‐ball outlook sees Permian topping Eagle Ford

Ø If field condensate rises as % of Permian output?

Ø If Permian pipeline buildout includes condensate?

Ø Permian will become major condensate producer


All Condensate

Ø Acempts to cover all condensate, including field Ø Assumes a price recovery by end-‐2016, at $60-‐70/BBL

Ø No expecta-on of $100/BBL before 2020 Ø Basin core produc-on; rising opera-onal efficiency


US Tight Oil Base Case Produc-on Forecast (In MBD) *


Note: * Total Crude Oil includes black oil, field and plant condensate.

Field 2012 2013 2014 2015 2016 2017 2018

Total Crude Oil * 733 1,044 1,442 1,750 1,820 1,893 1,900 Est. Field Cond 265 378 533 656 717 738 722 %Share Crude 36.2% 36.2% 37.0% 37.5% 39.4% 39.0% 38.0%Est. Plant Cond 35 48 55 72 76 80 83 %Share Crude 4.8% 4.6% 3.8% 4.1% 4.2% 4.2% 4.4%Total Condensate 300 300 588 589 793 900 805 %Share Crude 40.9% 28.7% 40.8% 33.7% 43.6% 47.5% 42.4%

Total Crude Oil * 1,169 1,349 1,638 2,132 2,254 2,316 2,340 Est. Field Cond 125 148 188 267 301 324 335 %Share Crude 10.7% 11.0% 11.5% 12.5% 13.4% 14.0% 14.3%Est. Plant Cond 34 42 54 78 90 98 104 %Share Crude 2.9% 3.1% 3.3% 3.7% 4.0% 4.2% 4.4%Total Condensate 159 190 242 345 391 422 439 %Share Crude 13.6% 14.1% 14.8% 16.2% 17.3% 18.2% 18.8%

Total Crude Oil * 634 851 998 1,342 1,396 1,424 1,430 Est. Field Cond 67 90 106 145 153 159 163 %Share Crude 10.6% 10.6% 11.0% 11.4%Est. Plant Cond 24 32 37 42 49 56 64 %Share Crude 3.8% 3.7% 3.5% 4.5%Total Condensate 91 143 202 227 %Share Crude 14.4% 14.3% 14.5% 15.9%

Eagle Ford

Permian

Bakken

Condensate Prospects

Ø Total 2018 Permian passes Eagle Ford by 10%+ Ø Ul-mate plateau produc-on expected far higher

Ø Permian condensate increases 80%, 2014-‐18 Ø Yet s-ll smaller than Eagle Ford Ø Permian condensate less known in USGC


Where to?

Ø Rising condensate takeaway focuses first on USGC

Ø Refiners take some; splicers will take more Ø Splicer: special-‐design dis-lla-on for condensate

Ø Can run solely condensate for sustained -me Ø Produces mainly naphtha; gasoline with reformer

Ø Splicers mainly East of Suez; less in Atlan-c Basin


Splicer Basics

Ø Only 5 USGC splicers, Galena Park fully running Ø Others in Ohio River valley, run on Marcellus/U-ca

Ø Forecast more condensate than splicers can use

Ø Producers: hedge your bets & look at exports -‐ now

Ø US producers must explore world markets -‐ again


US Condensate Splicer Build Up (1)

Note: (1) Martin Midstream was one of a number of companies that shelved condensate splitter plans. Castleton project may be able to start test-running in 2018.


Foreign Prospects -‐ West

Ø In Atlan-c Basin export outlets fairly limited Ø Regional splicers run on own output (Peru, Algeria)

Ø Diluent promising; Colombia replaced Venezuela

Ø Europe not Asia target for Eagle Ford exports so far

Ø Refiners as light crude proxy; Rocerdam only splicer


Exports, Current & Future

Ø Eagle Ford exports 13 MBD 2014; 60-‐80 MBD 2015

Ø Permian exports 2-‐3 cargoes (5 MBD?) in 2015 Ø Avails: Eagle Ford – 728 MBD, Permian 345 MBD

Ø Pipelines, Storage in Corpus Christ now in place Ø Price, more than logis-cs, dictates condensate sale


Base Case Condensate Forecast – All US, Field & Plant (In MBD)


Basin 2012 2013 2014 2015 2016 2017 2018Eagle Ford 300 426 588 728 793 818 805 Permian 159 190 242 345 391 422 439 Bakken 91 122 143 187 202 215 227 Marcellus/Utica 23 39 52 95 138 165 236 Others 270 263 230 200 180 160 130 Total 843 1,040 1,255 1,555 1,704 1,780 1,837

Foreign Prospects East – Asia Beckons

Ø Asian exports when WTI/LLS vs Brent Arb widens

Ø Refurbished Panama Canal opening in 2017 Ø Cargoes Westward will have 160,000 DWT limit Ø Reduced transport costs will allow greater exports

Ø Condensate trade already moving East


Condensate Trade Moving East


Eagle Ford Condensate Sales So Far

Ø A\er 2014 ini-al sales, Asia minimal interest Ø Why? A number of reasons Ø  a) Cargoes differed from interna-onal condensate

Ø  b) Sellers indifference to condensate quality Ø  c) Lack of proper marke-ng segmenta-on Ø  d) ”Build it and they will come” not marke-ng


Asian Ambi-ons

Ø Asia Pacific: Federal Reserve future condensate demand

Ø Northeast Asia in par-cular a prime marke-ng objec-ve

Ø  South Korea now opera-ng the most splirng capacity

Ø  Petrochemicals, refiners and stand alone splicers all buyers

Ø  Each buyer group wants somewhat different condensate


Asia Pacific Condensate Splicers (In MBD)

Country By 1/2014 By 1/2017 By 1/2019

Total Expansion Total Expansion Total

S. Asia 22 -‐-‐-‐ 22 -‐-‐-‐ 22

SE Asia 569 -‐-‐-‐ 569 30 599

NE Asia 589 554 1,143 109 1,252

Australasia 78 -‐-‐-‐ 78 -‐-‐-‐ 78

Total 1,257 554 1,811 139 1,950


Asian Buyers pay premiums for Condensate

Ø a) Maximum naphtha Ø b) Maximum N+A or; paraffinic content Ø c) Kerosine max Ø d) Clean, heavier condensates for blending Ø  Splicers main target; not only market Ø Refiners were main buyers in India, Singapore


Top Asian Condensate Buyers – Es-mated 2014 Imports


Why Asia; Why now?

Ø Asia Pacific consistently led world demand growth

Ø Asia wants to escape Mideast overdependence Ø Demand growth through 2020 slows; yet on 30 MMB/D base

Ø “Yin Yang” Emerging; Asia’s import needs; US oversupply

Ø  Asia Pacific shi\ing to lighter product use


Changing Times – Asia Pacific Products Demand


MBD % Share MBD % Share MBD % Share MBD % ShareLight Products 7,654 40.1% 9,126 42.2% 11,141 46.1% 12,379 46.8%of which: LPG 1,979 2,158 2,521 2,775 Medium Products 7,763 40.6% 9,045 41.8% 9,916 41.0% 10,829 40.9%Heavy Products (Fuel Oil) 3,689 19.3% 3,473 16.0% 3,131 12.9% 3,253 12.3%Total 19,106 21,644 24,188 26,461

2000 2005 2010 2013

Changing Times – North America Products Demand


MBD % Share MBD % Share MBD % Share MBD % ShareLight Products 12,278 59.6% 13,172 60.4% 13,029 63.8% 12,980 64.6%of which: LPG 2,169 2,152 2,086 2,271 Medium Products 6,811 33.1% 7,249 33.2% 6,567 32.2% 6,531 32.5%Heavy Products (Fuel Oil) 1,518 7.4% 1,396 6.4% 810 4.0% 578 2.9%Total 20,607 21,817 20,406 20,089

2000 2005 2010 2013

Changing Times

Ø Asia was a gas oil/diesel, jet/kerosine market Ø Lower retail subsidies slowing mid-‐barrel demand

Ø Gasoline rising; naphtha-‐based petrochemicals

Ø US exports, 38% light-‐endsin 2014 Ø  Asian demand magnet for NGLs, light products & condensate

Ø The “Yin/Yang” will widen and grow 26 ASIA PACIFIC ENERGY CONSULTING

Conclusions

Ø Condensate underappreciated in Permian output growth

Ø Even with bigger USGC needs, condensate will be exported

Ø Expanded Panama Canal makes exports to Asia easier

Ø Structural US oversupply, Asian import needs, crea-ng Yon/Yang

Ø  The changing nature of Asia demand makes light US exports priority


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