HOUSTON — With an $860 million deal announced this week, Buckeye Partners is betting on condensate.
Condensate, a type of light crude oil, has been flowing in increasing quantities from the Eagle Ford Shale in South Texas as technological advances boost production there.
And with more condensate flowing from the region — as well as the possibility that lightly refined condensate may be exempt from a U.S. ban on most crude oil exports — many midstream companies are looking at potential profit in getting the light oil from the South Texas wells to market.
From 2009 to 2012, annual U.S. production of condensate from wells grew by 54 percent, from 178 million barrels to 274 million barrels, according to U.S. Energy Information Administration. By many estimates, the Eagle Ford region accounts for the majority of that production.
On Tuesday, Houston-based Buckeye Partners L.P. announced it would enter the heated market by paying $860 million for an 80 percent interest in Texas facilities owned by Trafigura AG. The deal includes gathering facilities in the Eagle Ford, as well as processing plants and a marine terminal in Corpus Christi.
Buckeye has been active in markets including Chicago, New York and the Caribbean.
Buckeye and Trafigura will run the assets as a joint venture and will contribute at least another $240 million to build new storage and seaborne shipping capacity in the near future, the companies announced.
Trafigura AG is a subsidiary of Netherlands-based commodities trader Trafigura Beheer BV.
Under the new agreement, Trafigura will buy oil and condensate produced in the Eagle Ford before sending it to other markets using the joint venture’s infrastructure, said spokeswoman Marisol Espinosa.
The deal includes two condensate splitting units Trafigura already is building. Splitters break condensate into component parts including naphtha, kerosene and diesel. The units will be able to handle a combined 50,000 barrels per day of the light oil when completed in 2015.
In a Wednesday morning conference call with investors, Buckeye Partners executives said the partnership is considering building another splitter.
Other midstream interests also are building splitters to accommodate the increasing amount of condensate flowing from the Eagle Ford.
“The outlook is pretty favorable,” said Lysle Brinker, a research director at analyst firm IHS . “A lot of companies are looking at doing this.”
Kinder Morgan Energy Partners’ $360 million splitter project at its Galena Park terminal on the Houston Ship Channel, also slated for completion in 2015, will have a daily capacity of 100,000 barrels .
“Midstream is moving into processing,” said John Auers, executive vice president with Turner Mason and Co. “These large midstream companies are investing and the Gulf Coast is the place to be.”
Besides deriving condensate components, running it through a splitter can clear the way for its export.
A law that arose from oil shortages in the 1970s bans most crude oil exports from the United States, but recent regulatory activity has allowed some export of lightly processed condensate with a license.
Trafigura has applied for such a license, Espinosa said.
If regulators approve, the new Trafigura-Buckeye venture could export condensate through its five ship berths at the Corpus Christi facility terminal.
In a presentation to investors, Buckeye said that the market probably will favor splitting condensate it into its parts before sending it abroad. But Buckeye also stressed that it would remain flexible.