June 28 (Bloomberg) -- As many as 500,000 barrels of light oil a day may be eligible for export under a new government classification, helping to soak up surging U.S. shale oil production.
Pioneer Natural Resources Ltd. and Enterprise Products Partners LP said this week that the Commerce Department approved their plans to export some ultra-light crude, known as condensate, heated in stabilizers and distillation towers. Stabilization is far less complex than the processing of oil at refineries or at condensate splitters, which separate several gases and other products from crude.
Significant oil exports would help relieve a glut of oil on the Gulf Coast, where inventories rose to record levels this spring as production reached the highest since 1986. That could narrow the discount for U.S. oil relative to the rest of the world, weakening an advantage that U.S. refiners have enjoyed since 2011.
“Condensate exports could narrow the gap between U.S. and international refining margins,” Warren Russell, a New York-based analyst for Barclays PLC, said yesterday in a research note.
U.S. benchmark West Texas Intermediate crude has averaged a $7.96 a barrel discount to European Brent crude, the international marker.
There may be more than 1 million barrels a day of condensate-stabilizing capacity in U.S. oil fields, said Jeff Stake, director of sales for Odessa, Texas-based Allied Equipment Inc. Allied has manufactured and sold stabilizers that can process about 200,000 barrels a day, Stake said.
More than 90 percent of condensate that moves through stabilizers is processed in adjacent distillation towers, said Bill Bowers, vice president of production equipment for Houston-based Valerus, which manufactures and installs the systems.
Crude oil that has been processed through a distillation tower, resulting in petroleum products, is no longer crude and can be exported without a license, Jim Hock, a Commerce Department spokesman, said June 24 in a written statement. The U.S. prohibits most exports of unprocessed crude.
Stabilizers, which are located at gathering facilities in production fields, boil off the most volatile compounds, leaving behind ultra-light oil that is safe to transport or store. Some volume is lost in the process. About 500,000 barrels a day of crude is churned out from stabilizers and distillation towers daily, Stake said.
Individual units can handle from 500 barrels a day to 50,000, said Nader Khaki, director of sales and engineering for SouthTex Treaters Inc. SouthTex has sold 500,000 barrels a day of total stabilizing capacity, including at least one unit to a producer in Colombia, Khaki said.
Crude oil is a complex mixture of different kinds of hydrocarbons that, when heated, separate into a gas at different temperatures.
“It’s everything from small particles like ethane and propane to more viscous material that will eventually be made into asphalt,” said Dennis Sutton, president of the Crude Oil Quality Association. “The difference is just in the distribution.”
Theoretically, any kind of oil could be passed through a stabilizer, said Bowers of Valerus. Lighter crudes processed in stabilizers with distillation equipment can produce gases at lower temperatures, while heavier oils moved through the same systems may result in much less gas, Bowers said.
If the Commerce Department requires significant amounts of light products to be removed, heavier oil would need temperatures more than twice as high to generate those products, Bowers said. “It’s probably not going to be economic and before long you’re spending so much that you might as well refine it.”
About 750,000 barrels of condensate are produced from U.S. shale plays daily, said Michael Wojciechowski, head of Americas downstream research for Wood Mackenzie Ltd. The U.S. will produce about 650,000 barrels a day this year of the lightest classification of crude oil, the Energy Information Administration estimated in a May report.
U.S. crude production has boomed in recent years, spurred by horizontal drilling and hydraulic fracturing in shale plays. Output has risen 46 percent since the start of 2012 to nearly 8.5 million barrels a day.
Stabilizing is widespread in several shale plays, including the Williston Basin in North Dakota, the Permian in West Texas and the Utica in Ohio, Stake said. It’s most prevalent in the Eagle Ford, home to some of the lightest crude in the U.S.
“The new light hydrocarbons that come from all of the shale production, for the most part those are candidates for needing stabilization,” Bowers said.