Midstream and downstream operators have announced new Gulf Coast condensate splitters with capacity of more than 400,000 barrels per day (bbl/d).

Scott Sheffield, chairman and CEO of Pioneer Natural Resources Co., which is bringing online Eagle Ford condensate (60°API gravity) from South Texas, said in a recent presentation in Houston that new U.S. oil production of 8.1 million barrels per day (MMbbl/d) includes some 800,000 bbl of condensate.

Currently, condensate cannot be exported because it is defined by the U.S. Commerce Department as crude oil. U.S. producers have asked the department to reconsider the definition, because condensate is natural gas while still in the ground. Categorization had not been an issue in the past because the U.S. refining slate had sufficient capacity to process U.S.-produced, light-gravity, oil and condensate.

Splitters solve this dilemma because they change condensate into liquefied petroleum gas, naphtha, jet, diesel and gasoil—“refined” products by the U.S. Department of Commerce definition and thus exportable.

“[Some] 400,000 bbl/d of condensate splitters have been announced,” Sheffield said at the Independent Petroleum Association of America’s OGIS conference in New York. “Some will be built; some won’t, depending on the Commerce Department’s
decision on condensate.”

He added that “hydro-skimmers,” which are slightly more sophisticated than the splitter process, are being discussed as well. Independent producers engaging in joint ventures with refiners may be another solution, he said, but “I hope that doesn’t happen. That is a worst-case scenario.”

The U.S. exported 4.3 MMbbl/d of oil byproducts in December, according to a U.S. Energy Information Administration report that noted it was “the first time exports exceeded 4 MMbbl/d in a single month.”

FBR Capital Markets & Co. securities analyst Benjamin Salisbury reported that 400,000 bbl/d condensate-splitter capacity is estimated to require an investment of about $1.5 billion. “Not only could reclassification [by the Department of Commerce] undermine these domestic investments, it could also have a chilling impact on light-oil distillation-capacity additions, which have a longer payback period,” he said.

Targa Resource Partners LP plans a splitter at Channelview, Texas, along the Houston Ship Channel with Noble Americas Corp. The $115 million project will have an initial capacity of 35,000 bbl/d with a long-term contract.

Ethan Bellamy, a securities analyst with Robert W. Baird & Co., said, “The announcement follows a string of recent Gulf Coast condensate-splitter-project announcements, including Kinder Morgan [Energy Partners LP]—two 50,000 bbl/d splitters online in the second half of this year and first half of 2015—Magellan Midstream [Partners LP]—50,000 bbl/d, expandable in the second half of 2016—Phillips 66 and Martin Midstream [Partners LP], among others.”

Brad Olsen, securities analyst for Tudor, Pickering, Holt & Co., said of the Magellan and Targa news: “More condensate-splitters announced—finally.”

Magellan’s $250 million plan is for a 50,000 bbl/d splitter at Corpus Christi, Texas, with a long-term contract with Trafigura AG. The company reports that the plant would be expanded to 100,000 bbl/d if there is additional demand.

Olsen added, “With the Kinder Morgan splitter and crude-topping units that have been previously announced—by Valero Corp.
and Flint Hills Resources [a subsidiary of Koch Industries Inc.]—total light crude/condensate, processing/splitting capacity will be some 470,000 bbl/d in 2017. Barring a change in export policy, we expect more splitter announcements to come as Eagle Ford condensate production will be [a TPH estimated] 675,000 bbl/d by year-end 2020.”

In mid-April, after a Magellan analyst day conference, Olsen said: “Given refiner reluctance to take lighter condensate inputs, we also see condensate splitters as a major capex opportunity for midstream [operators] on the Gulf Coast. We’ve started seeing announcements of these splitters but expect to see more throughout 2014, especially if [Washington] provides more visibility on export legislation.

“This project, along with Targa’s 35,000 bbl/d splitter, demonstrates that midstream-service providers are willing to make investments in condensates, despite risk around export regulations. Magellan’s management is confident that there will be no change to the current ban on condensate exports—at least not for the next three years—and, without unrestricted exports, we believe more condensate processing will be needed—470,000 bbl/d currently announced on the Gulf Coast—to handle increasing Eagle Ford supply, which TPH [Tudor, Pickering, Holt & Co.] estimates will exceed 500,000 bbl/d in 2016.”

Should the categorization of condensate as crude oil change, however, he reported, “Magellan will be well positioned, as 65%
of the $250-million capex for the splitter will be spent on dock and storage infrastructure that could be used for exporting condensate [instead.]”

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