Vast condensate production potential presents major market challenges
Eagle Ford production is likely to rival Bakken production levels in 2013 based on EAI, Inc.’s latest North American Shale Fairway Crude Supply, Logistics , Refining and Pricing Outlook study update and basin production tracking. EAI, Inc. is projecting Eagle Ford production to exit 2012 at 610 to 660 MBPD and to increase to 800 to 900 MBPD of liquids (crude and condensate) production in 2013. Production in North Dakota, which is dominated by the Bakken, was averaging 728 MBPD in September of this year and EAI, Inc. is forecasting ND production to approach 900 MBPD in 2013.
Eagle Ford hydrocarbon production grades from NGL and condensates to light crude grades. EAI, Inc.’s estimate for Eagle Ford liquid production by grade for December 2012 is estimated at 314 MBPD light (36-42° API), 135 MBPD very light (42-50° API) and 110 to 160 MBPD condensate (50° API plus). This was estimated by EAI, Inc. analysts via examination of current well level production statistics in the Eagle Ford. A recovery in natural gas prices would tend to broaden the ‘liquids fairway’ and contribute to longer term condensate supply. However, increasing condensate production is faced with increasing market and logistical challenges.
The combination of Eagle Ford, Permian, Gulf of Mexico and Inland supply growth will result in a growing overhang of supply exceeding Gulf Coast refining capability to process this type of crude once similar light crude imports are displaced. Light sweet and sour crude streams imported by Gulf Coast refiners are averaging 1300 MBPD in 2012. The growing condensate stream will tend to overshoot crude blending limitations and accelerate saturation of the Gulf Coast refining market. EAI, Inc. anticipates growing transport of Eagle Ford crude to the Northeast U.S. refining market but limited by the availability and cost of Jones Act Tankers.
Exports of crude and condensate (liquids at STP that have not been processed through distillation units) to foreign markets requires that a license be issued to the exporting company by the Department of Commerce with only Canadian export destinations currently being approved. At least two major oil companies have applied for licenses (one approved) to export light shale crudes to refineries in Canada and initially targeting Eastern Canadian refiners.
The petrochemicals market represents an alternative market outlet for condensate but currently cannot compete domestically with NGL-derived feedstocks that are in growing supply from newer shale plays. EAI, Inc. is also forecasting growth in the Western Canadian condensate market for bitumen blending and transport. All of these options are likely to be pursued to diversify market options and maximize wellhead netbacks for producers.