U.S. producers should be pushing exports of ultra-light condensate crude, says a new report from Morningstar Commodities Research.

The shale era has been dominated by light crude, and petrochemical plants and refineries in the U.S. have not been able to absorb all of the plentiful production. Now, an opportunity for U.S. producers is afforded by “a tightening Asian market for condensate that is prompting prices averaging $3/bbl over the U.S. Gulf Coast,” said the report, issued Sept. 17. In Asia, more petrochemical plants are coming online at the same time that condensate supply is lower.

The turmoil in Iran is expected to additionally set the stage for increased U.S. exports of condensate. The sanctions expected to be imposed in November as well as Iran’s buildout of domestic condensate production capacity will open up new opportunities for U.S. producers, the Morningstar researchers noted. They look for Iran’s crude exports to be reduced by about 1.5 million barrels per day (MMbbl/d), with a resulting effect on condensate exports, “although in the past, the US. has not classified condensate as crude.”

U.S. condensate production during the shale boom peaked at 1 MMbbl/d in 2015 but fell when the recent downturn shut down drilling in many regions. Of late, condensate production is ramping up in the Permian Basin, according to the report, as well as in the Eagle Ford Shale, where output is up 13% since January.

Of the two main demand centers for condensate, Morningstar noted that Canada’s diluent market has been oversupplied with light crude, resulting in a discount of about $5/bbl in Alberta vs. the prices for Eagle Ford condensate at Gulf Coast points. In Asia, where condensate is a feedstock for petrochemical plants, Morningstar said that Eagle Ford condensate is particularly suited to these plants which serve markets in Japan, South Korea and China.

“With prices for Qatar’s benchmark deodorized field condensate, or DFC, trading at an average $3/bbl premium to Eagle Ford condensate at the Gulf Coast this year, it makes sense for U.S. producers to be increasing exports,” said the Morningstar analysts. The Eagle Ford production is advantaged because it doesn’t have the pipeline constraints that have choked Permian Basin activity of late, and “many of the Eagle Ford pipelines have been dedicated to condensate to preserve quality.” The report notes that additional Permian pipelines that are similarly dedicated are due next year and in 2020.

U.S. producers will have to move fast to seize these opportunities, Morningstar suggested, because Australian projects as well as light crude volumes from Indonesia, Malaysia and Vietnam will compete.

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