NORTH AMERICAN NATURAL GASOLINE

Transcription

1 NORTH AMERICAN & NATURAL GASOLINE Condensate Outlook

2 KEY TAKEAWAYS NORTH AMERICAN NATURAL GASOLINE & Condensate Outlook Overview Only Contact BENTEK to subscribe. For more information about BENTEK's industry-leading analysis and data on energy markets and energy commodities, please contact: Katie Lowe Field Marketing Manager

3 NORTH AMERICAN NATURAL GASOLINE & CONDENSATE OUTLOOK CONTENTS December 2013 NORTH AMERICAN NATURAL GASOLINE & CONDENSATE OUTLOOK KEY TAKEAWAYS 2 OVERVIEW 4 US & CANADIAN CRUDE OIL MARKET TRENDS 6 OIL PRODUCTION BY BASIN, PLAY 9 Eagle Ford Play 10 Permian Basin 12 Utica 14 Denver Julesburg Basin 15 Anadarko Basin 17 LIGHT CRUDE & CONDENSATE DEMAND 19 Refining Demand 19 Diluent Demand 22 Canadian Bitumen 22 Mining Bitumen Production 23 In Situ Bitumen Production 24 Diluent Market 25 Natural Gasoline 26 Diluent Transportation 29 Diluent Demand Forecast 29 Condensate Splitters 31 Naphtha Market 31 PRICE OUTLOOK & CONCLUSIONS 34 RISKS 36 DEFINITIONS 37 3

4 18.0 North American Crude, Condensate and Natural Gasoline Production MMb/d Figure 1. SOURCE: BENTEK Heavy Oil < 28ᵒ Intermediate Oil 27ᵒ-32ᵒ Light Oil 32ᵒ-45ᵒ Condensate 45ᵒ-65ᵒ Natural Gasoline ~80ᵒ Overview US crude oil production is expected to grow 47% over the next decade, or about 3.5 MMb/d, but equally important will be the changing composition of domestic oil supply. The unconventional drilling boom in plays such as the Eagle Ford in the Gulf Coast Basin of South Texas, the Niobrara in the Denver Julesburg Basin of Colorado, and the Utica in the Appalachian Basin, among others is producing substantial amounts of this ultra-light oil, which has an API gravity exceeding 45. Production of light and ultra-light oil, called condensate, is growing much faster than production of intermediate and heavy crude. Condensate is expected to represent 17% of total US oil production by 2023 compared to only 5% in While light oil growth will lead to displacement of most waterborne oil imports, making the US less dependent on foreign oil, the domestic market is not really equipped to handle this much ultra-light oil supply. Consequently, light oil prices will face downward price pressure in the coming years. Condensate is a nebulous concept to much of the market. To make the concept clearer, Bentek includes two types of wellhead liquids production in the definition, but excludes processed commodities, particularly natural gasoline. In this paper, condensate is defined as both 1) oil production with an API gravity greater than 45 ; and 2) lease condensate produced at a gas wellhead and separated prior to the gas entering a gathering line. Natural gasoline, the heaviest of the natural gas liquid purity products produced at an NGL fractionation plant, is excluded from this definition. Natural gasoline is similar in chemical composition to condensate and sometimes is referred to as plant condensate. However, it has different economics and has a higher API gravity of 80 with little variability. It is also important to distinguish between natural gasoline and condensate because they compete in the diluent market in Canada s oil sands. Both condensate and natural gasoline supply are growing rapidly. Rising NGL raw mix supply from multiple unconventional liquids-rich plays and growing fractionation capacity are boosting natural gasoline production. Meanwhile, wellhead production of condensate is dominating oil production growth. The greater-than-expected growth of condensate and natural gasoline in the US will create significant challenges for the oil industry because the market for condensate is limited. US refineries have limited flexibility to process a range of different crudes. Refineries that historically refined light crude were built to use crude grades similar to Louisiana Light Sweet (LLS) on the Gulf Coast, West Texas Intermediate at Cushing, OK, or from international suppliers in the Brent market. Those crudes have an API range between 37 and 42. Refining those common crudes leads to a different mix 4

5 of refined products than product yields from refining condensate. The value of a relative barrel of light crude is higher than a barrel of condensate due to the higher yield of premium-value refined products such as diesel and kerosene. Refining 55 API condensate yields on average about 44% naphtha and only 12% diesel. In comparison, refining LLS crude yields 26% diesel and only 24% naphtha. In addition, a refinery that switches from light crude to running condensate can encounter engineering challenges such as flooding trays in a distillation column, resulting in capacity constraints. These constraints limit the ability for condensate to compete for refining space, which forces condensate to trade at a discount. Condensate also can be refined at a condensate splitter facility, but only one dedicated splitter exists in the US today, a 75,000-b/d facility owned by BASF and Total in Port Arthur, TX, and only three others are currently planned for construction. A third market for condensate is the diluent market in Canada. Condensate can be blended with Canadian bitumen from the oil sands in Alberta to lower the viscosity and make Canadian heavy crude transportable by pipeline. Diluent demand also is growing rapidly. However, natural gasoline is the preferred diluent over condensate, and supply of natural gasoline also is growing substantially in the US. Meanwhile, the international market seems to be a likely destination for US condensate, but condensate exports are blocked by federal law because condensate is taken directly from the production stream at the wellhead and must first be refined before it can be exported. Refining condensate yields a large amount of naphtha. A light crude barrel produces about 30% naphtha, and a condensate barrel yields at least 44% naphtha. Based on these estimates, the incremental 2.3 MMb/d of light crude and 1.0 MMb/d of condensate production expected between 2013 and 2023 will yield about 1.1 MMb/d of additional naphtha. The International Energy Agency (IEA) estimates that the global naphtha market totaled only 5.4 MMb/d in 2011, and since then the US and European markets for naphtha have been stagnant or in decline. US naphtha demand has declined because of flat gasoline demand and a switch away from naphtha by US steam crackers, which prefer ethane and propane as feedstocks due to the price advantages. In its World Oil Outlook 2013 report, OPEC estimated that naphtha demand in the Asia-Pacific region would grow 0.8 MMb/d by 2020 and 1.3 MMb/d by 2023, with China accounting for more than one-third of the increase. Korea, another large naphtha consumer, is expected to be another area of demand growth. These conditions point to an eventual deluge of US naphtha exports hitting the global naphtha market destined for Asian markets. These market limitations are likely to create growing oversupplied conditions in the US oil market, downward pressure on oil prices, particularly light oil and condensate, constraints on production in some areas and eventual drilling declines unless solutions are found. Bentek expects condensate production to grow by more than 1.0 MMb/d from 2013 to As a percentage of total US crude production, condensate will go from being 5% in 2010 to 17% by Without new market alternatives condensate prices are likely to come under extreme downward pressure, with impacts carrying over into the broader oil marketplace. The remaining pages of the Market Alert have been omitted from this overview. Katie Lowe at catherine.lowe@platts.com for more details 5

6 CONTRIBUTORS & ACKNOWLEDGEMENTS Erika Coombs, Energy Analyst Nicole Leonard, Energy Anayst Kathryn Miller, Manager, Energy Analysis Anthony Scott, Manager, Energy Analysis Kendall Puig, NGL Analyst Jennifer Van Dinter, Manager, Energy Analysis Rocco Canonica, Director, Energy Analysis Noel Copeland, GIS Products Manager Courtney Geiger, Energy Technician DISCLAIMER. THIS REPORT IS FURNISHED ON AN AS IS BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN, WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY. For more information online: 6