Morgan Stanley Sees No Flood of U.S. Condensate on Export Ruling

U.S. approval for exporting some of its ultra-light crude after minimal processing only broadens the definition of refined products and won’t mean a sudden jump in overseas shipments, according to Morgan Stanley.

While some producers are interested in exports, the ruling to allow Pioneer Natural Resources Ltd. and Enterprise Products Partners LP to ship condensates that have been run through a distillation tower won’t significantly increase U.S. shipments or limit supplies, Adam Longson, a New York-based analyst at the bank, said in an e-mailed report today.

Anadarko Petroleum Corp., Marathon Oil Corp. and Devon Energy Corp. also have access to similar technology and are looking at the opportunity, Longson said, citing discussions with the companies.

“Our conversations don’t suggest a significant amount of underutilized distillation capacity is available to drive up exports anywhere near some of the estimates we have seen in the press,” he said. “We are skeptical about reports of 500,000 to 1 million barrels a day of potential exports by year end.”

Shipments could be challenged by limited infrastructure, unattractive economics and uncertainty about the quality of processed condensates, Longson said.

Limited pipeline connections and port capacity may restrict volumes, and refining and exporting condensates may cost at least $4 to $5 a barrel, leaving domestic use as the best option, Longson said. Processing will affect the quality as propane, butane and other light hydrocarbons, which are “key” parts of traditional condensates, will be missing, he said in the report.

Distillation Tower

Crude that has been processed through a distillation tower to make petroleum products is no longer raw oil and can be exported without a license, Jim Hock, a U.S. Commerce Department spokesman, said June 24 in a written statement. The U.S. prohibits most exports of unprocessed crude.

A distillation tower is traditionally used to heat crude or condensate to remove fuels as they boil off at different temperatures. It can also be used for condensates to remove volatile hydrocarbons for safer storage and transport.

U.S crude production has boomed in recent years, spurred by horizontal drilling and hydraulic fracturing in shale fields. Output has risen 46 percent since the start of 2012 to almost 8.5 million barrels a day. Inventories reached 399.4 million barrels in April, the highest since the Energy Information Administration began publishing weekly data in 1982.

U.S. benchmark West Texas Intermediate crude has this year traded at an average discount of $8.11 a barrel to Brent in London, the international marker. Even with “large scale” exports from the U.S., WTI will still trade at a discount of $5 to $8 a barrel to Brent, Longson said.

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