| NEW YORK
NEW YORK Aug 18 Washington's decision to allow
exports of an ultra light crude offers a potential boon to U.S.
producers that will bypass drillers in the Permian basin,
because the country's fastest growing shale play lacks pipelines
or affordable trucking.
The first exports of condensate have been from the nearby
Eagle Ford Shale, a formation served by pipelines and rail,
enabling producers to transport condensate to the coast.
Pioneer Natural Resources Co, a leader of the
crusade to get Washington to allow the first condensate exports,
has examined the economics and decided to ship from Eagle Ford,
Chief Executive Officer Scott Sheffield said.
"(There are) no plans to export Permian condensate from
plants," Sheffield told Reuters in a recent interview. "By the
time we truck it, it's not worth the economics of exporting it.
We would need pipelines to make it economic."
The Permian's rapid growth has made it a darling of shale
producers. Some say it could produce at high rates for 30 years
or more. Still, it mainly serves local refineries because of its
The possibility of selling condensate into higher priced
foreign markets has opened opportunities for shale producers,
giving value to an often unwanted byproduct. Discounts on Eagle
Ford condensate, currently about $10 a barrel below WTI, could
narrow quickly when exports increase, traders say. In contrast,
producers in the Permian may face a continued drag on pricing.
Permian producers face two problems: pipeline operators do
not want to transport condensate because it can contaminate
batches of crude, and the cost of trucking is too high.
Moving condensate from the Eagle Ford is easy because it is
close to both Houston and the port of Corpus Christi. Producers
have options to rail, truck or pipe oil to Houston-area
refineries then move it along the coast or overseas.
But moving oil from West Texas is more difficult as
pipelines in the region are already running near capacity and
heavily geared toward transporting oil to Cushing, Oklahoma, the
delivery point for the U.S. crude oil contract.
A number of pipelines set to start up later this year and
early next may help alleviate bottlenecks. But traders say more
capacity is needed.
Unlike Eagle Ford, Permian has no lines dedicated to
condensate, noted Christopher Kopczynski, an analyst at Wood
"Logistically, there are not any easy ways to get (Permian)
condensate to the Gulf Coast outside of batching in the trunk
lines," Kopczynski said. Batching, or sending condensate in
separate cargoes so it does not mix with other crude, can be
difficult, he said.
Earlier this year, Pioneer and Enterprise Product Partners
LP became the first two companies to receive approval
from the U.S. Commerce Department to export a form of stabilized
condensate that had been lightly processed.
Oil producers hope the move could be a first step in ending
a decades-old ban on U.S. crude exports. Several have looked
into the possibility of exporting their own deeply discounted
"There is more condensate produced in the Permian than ever
before," said Sandy Fielden of consultancy RBN Energy. "Up until
now, people considered it to be a secondary product. There was
production coming online and it was suffering from discounts.
But, people are now interested. The problem (with the Permian)
is getting the crude to market."
Analysts say it is difficult to determine just how much
condensate is produced in any play,. The Texas Railroad
Commission, which collects reports from operators in the
Permian, estimated that in 2013, some 4.6 million barrels of
lease condensate, or 12,600 barrels per day, was produced in the
region. This compares with just 2.9 million barrels or some
8,000 barrels per day in 2012.
Permian oil is getting increasingly lighter, and well
completions in main zones have tripled year over year, allowing
condensate production to continue a steep climb.
(Reporting by Catherine Ngai; Editing by Jessica Resnick-Ault)