The lifting of a decades-old ban on crude oil exports primes Corpus Christi to become a key oil hub in the coming years, but it also dampens interest in expensive projects to export condensate, an ultralight oil not subject to the long-standing restriction.
In the short term, the South Texas port city probably will see a drop-off in announcements for new condensate splitters and stabilizers — processing equipment necessary to prepare condensate for export under previous rules.
Midstream operators are rethinking those plans now that federal legislation, passed and signed into law just last week, allows producers to ship all grades of crude. That means they don’t need to invest in infrastructure for processing condensate to get around the export ban, according to a new analysis by Housley Carr with RBN Energy.
But exports could be transformative for Corpus Christi, Carr argued, pointing to a massive build-out of its marine dock facilities that primes the city to capitalize on the new rules once economics improve for oil shipments overseas.
“Now that Congress has lifted restrictions on crude exports, the floodgates would appear to be open for surplus Eagle Ford and Permian crude to ship to overseas markets, provided the economics justify such movements, which they don’t at the moment,” Carr wrote in his analysis. “In the longer term though, exports could be the key to Corpus’ future.”
When oil prices were in triple digits 18 months ago, international crude typically had a higher price than oil produced in the United States, and that prompted the push for exports. The global oversupply of oil that has taken hold since then, however, has reduced the international premium and reduced the profit potential of exports.
Corpus Christi has seen a flurry of proposed investments from midstream companies scrambling to take advantage of the flood of condensate gushing from the nearby Eagle Ford Shale.
Several companies considered building condensate splitters–distillation units that break condensate into diesel, kerosene and naphtha. Refiners with existing plants pressed forward with plans to retool those refineries to process more light Eagle Ford crude and condensate, replacing some of the heavier crude they imported from overseas, Carr wrote.
But a June 2014 Department of Commerce decision to allow some exports of condensate with minimal processing gave rise to a rash of new proposals to build condensate stabilizers. They’re cheaper equipment for processing the ultralight oil than splitters, which can cost about the same as a $100 million simple refinery.
Condensate exists as a gas underground but flows as a liquid at normal temperatures and pressures.
Some companies that had proposed splitters scrapped their plans instead for stabilizers, most notably Houston-based Cheniere Energy, which revealed in June that it would pursue the less intensive treatment technique instead of a splitter along the La Quinta Ship Channel in Ingleside near Corpus Christi. The splitter project was slated to cost about $550 million, Cheniere said then.
In addition to the new rule interpretation that allowed for the shipment of stabilized condensate, midstream operators had started to shy away from splitters because a global crude glut and record levels of U.S. crude in storage had narrowed the gap between international and domestic benchmark oil prices, making U.S. condensate less attractive, Carr wrote.
Only one splitter so far has crossed the finish line in Corpus Christi, a joint venture between Houston-based petroleum distributor Buckeye Partners and trader Trafigura AG, which has agreed to take all of the splitter’s capacity of 50,000 barrels per day for several years. Another 50,000-barrel-a-day splitter by Magellan Midstream Partners is slated to start up in the second half of next year.
Carr said that Castleton Commodities has delayed plans to start construction in the middle of this year but has indicated it could start work early next year. Martin Midstream appears poised to scrap its splitter plan or shift to a cheaper stabilizer, Carr said. And Gravity Midstream said earlier this year it would convert a crude processing unit in a crude oil logistics terminal on the Corpus Christi Ship Channel into a stabilizer or splitter, but didn’t say which.
With the export ban now lifted, prospects for future stabilizers look even dimmer.
“So don’t look for a lot of more stabilizers to be built in Corpus Christi going forward,” Carr wrote