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 As record production of the once-rare oil emerges from U.S. shale
wells in North Dakota, Ohio or Texas, what constitutes "condensate"
is becoming a critical question in the debate over easing a
longstanding U.S. ban on crude exports.
What's in a name? Possibly hundreds of thousands of barrels a day of
exported oil. If U.S. regulators opt to allow further exports of
processed condensate, but not crude oil, the distinction between the
two will be worth billions of dollars.
Not unlike in the Supreme Court case, the difference is often in the
eye of the beholder: there is no single definition of what
distinguishes a condensate from ordinary crude oil.
The Energy Information Administration (EIA) is now trying to remove
that uncertainty by defining condensate and quantifying its output.
"We hope to have this sorted out so that policymakers will know what
the numbers are," EIA's chief Adam Sieminski said late last month in
New York.
The agency, the independent statistics branch of the Department of
Energy, aims to launch by mid-2015 a new survey that would capture
the quality of oil from each well.
It also held a closed-door "Condensate Workshop" for officials from
several agencies and energy experts last Friday, one of its first
efforts to produce a firm definition, according to two participants.
U.S. export regulators may wait for such a definition before they
issue any more rulings on exports of "processed" condensate, the
attendees said. The first two rulings rattled the industry earlier
this year.
The term refers broadly to any type of oil that "condenses" into a
liquid after being freed from high-pressure wells, where it often
lurks in gas form, or separated from gas.
But once it becomes a liquid, there is no agreed way to tell
condensate from ordinary crude. Most state regulators do not even
measure it; those that do, only measure gas-related condensate, not
that from the hydraulically fractured oil wells.
Most industry insiders expect the definition to revolve around API
gravity, a standard measure of density with higher readings produced
by lighter grades. Condensate is the lightest of the light.
However, deciding where to draw that line is likely to be a
contentious process.
DEFINE ULTRA LIGHT
Refiner Phillips 66 and midstream giant Plains All American have
said condensate is oil with an API gravity of 45 or above.
Meanwhile, Marathon Petroleum Corp's top executive said in a recent
interview he believed condensate should have an API gravity of 60
and above.
Without a universal standard, production data vary wildly. The EIA's
own figures suggest that anywhere from 8 percent to 16 percent of
U.S. crude oil production is condensate - a difference of more than
half a million barrels a day.
In one respect, condensate is just another term used to describe one
end of a spectrum of over 100 grades of crude oil.
However, unlike most types of crude it can be used in a variety of
processes, from refining to the production of petrochemicals. The
term also applies equally to condensate pumped from a well or
processed at a gas plant, which are chemically interchangeable but
often reported differently.
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Most importantly, the U.S. Department of Commerce earlier this year
gave two companies approval to export condensate that had been
minimally processed, the first sign of loosening the four-decade-old
ban on exports.
Because the rulings are private, it is not clear whether the same
sort of processing would allow for exports of ordinary varieties of
crude oil as well.
To be sure, lifting the ban completely could render the discussion
moot. However few policy experts see any chance of that happening
before presidential elections in 2016, if then. MISLEADING
LABELS
Available data is more misleading than helpful, probably
dramatically understating condensate production.
For example, the Texas Railroad Commission, which oversees the Eagle
Ford and Permian basins that account for most condensate output,
publishes monthly production data, but only counts condensate that
comes from natural gas wells. Most states, including North Dakota,
do not report it at all.
The most recent data from the EIA, which also only counts natural
gas lease condensate, shows production rose by nearly a fifth to
around 750,000 bpd in 2012.
Energy consultancy Bentek Energy estimates current national
condensate output at around 1.45 million bpd, with only about a
third coming from gas wells. "You’re missing most of it," said Al
Troner, a condensate expert and president of Asia Pacific Energy
Consulting.
The EIA earlier this year made the first effort to distinguish and
forecast domestic production by API gravity. It estimated that out
of a forecast 8.4 million bpd 2014 oil output, about a quarter was
in the API 40-45 range. However, the project was hamstrung by a lack
of consistent data from various state-level regulators, many of whom
do not collect it.
In Texas, for instance, API gravity data gets collected only from
initial tests for oil and gas wells and during annual and
semi-annual tests for gas wells.
"This certainly does make the export question more difficult as the
data is not precise, nor are the definitions," said Anthony Starkey,
a manager at Bentek.
"So how policy is shaped in a clear way around such a gray area does
make for some interesting discussions."
(Additional reporting by Timothy Gardner in Washington; Editing by
Jessica Resnick-Ault, Jonathan Leff and Tomasz Janowski)
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