WASHINGTON — Within five years, Texas could be exporting 1 million barrels per day of an ultra-light oil known as condensate, Pioneer Natural Resources CEO Scott Sheffield predicted Tuesday.
There is a limited U.S. market for condensate, which is generally a gas underground and is so light domestic refiners have a limited capacity to process it. But Asian buyers are interested in it as a replacement for naphtha, a petrochemical feedstock.
Already, Pioneer is exporting about 15,000 per day of distilled condensate, with three cargoes shipped to South Korea, Europe and Singapore and a fourth leaving soon for Japan. Sheffield said the company, which is the largest producer in West Texas’ Permian Basin, is on track to export most of its 70,000 barrels-per-day yield of condensate “sometime next year.”
Pioneer is contracted to sell most of its treated condensate to Enterprise Products Partners, which markets it globally.
Earlier this year, Pioneer and Enterprise became the first two companies to win Commerce Department rulings affirming that once it is lightly distilled, condensate qualifies as a petroleum product that can be freely exported. Raw crude is generally barred from such foreign sales, though exports of gasoline and other petroleum products are not restricted.
Other Texas oil producers, marketers and midstream companies are eager to follow Pioneer’s lead. At least a half dozen companies have asked the Commerce Department’s Bureau of Industry and Security for classification rulings, which are not strictly required but provide legal assurance for buyers that the products they export comply with U.S. trade laws.
But those requests stalled after the applicants answered bureau questions about their equipment, processes and the way unfinished condensate would be altered. The delay is feeding some export advocates’ fears that political concerns may be prompting the Obama administration to pull back on more approvals, at least temporarily.
“There are people right next door to us who have the exact same distillation units,” Sheffield said. “They’re running the exact same condensate through, and they’re not being approved.”
The lawyer who represented Enterprise before BIS, Jacob Dweck, said on Oct. 2 that if the bureau doesn’t issue condensate classification rulings soon, it could be an indication political factors are at play.
BIS could unleash a flood of U.S. condensate if it issues those case-by-case classification rulings affirming treated condensate is exportable. The agency also could write a blanket ruling saying that even untreated lease condensate straight out of wells can be sold overseas.
A broad ruling on raw lease condensate would represent a major change in longstanding trade policy that bars most U.S. oil exports, though there are exceptions for Californian crude, Alaskan oil and shipments to Canada.
Condensate makes up about half of the 1.5 million barrels of oil flowing out of the Eagle Ford shale formation daily.
“But Eagle Ford is still growing — that 1.5 will go to 2 million barrels a day over the next three to five years,” Sheffield told reporters on the sidelines of an Aspen Institute panel discussion. “So condensate could grow there to up to a million barrels a day.
Sheffield said Pioneer’s export advantage translates to an extra $15 to $30 per barrel of condensate, which has limited appeal to domestic refiners geared to process heavier crudes.
“There is a price point at which they will take it and blend it in their refinery, but they are going to pay a producer 15 to 30 dollars less than world prices,” Sheffield said.
Upstream oil producers say a building tidal wave of U.S. crude could soon overcome refiners’ capacity to absorb it.
Refiners spent $85 billion retooling their facilities to process heavier, lower-quality crude before today’s domestic drilling boom and the surge in light, sweet oil production. Refiners that have boosted their run rates to accept more light, sweet U.S. crude say they can make changes to process even more.
Refiners: We can take all of your oil
“We’re moving all this light sweet crude to a refining complex that was built to handle heavy crude,” Sheffield said. “What we’re worried about is exceeding our refining complex.”
If more condensate starts flowing outside U.S. borders, it could delay that tipping point by a year to a year and a half, Sheffield said. That’s because pulling ultra-light condensate out of the blend for refineries opens up room for them to take more light, sweet crude.