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Investment Options for Crude & Condensate Stabilization and Splitting Ryan M. Couture Senior Consultant 2015 AFPM Annual Meeting March 23, 2015 San Antonio, TX AM-15-13
Investment Options for Crude & Condensate
Stabilization and Splitting
Ryan M. Couture Senior Consultant
2015 AFPM Annual Meeting March 23, 2015 San Antonio, TX
AM-15-13
Presentation Outline
• U.S. Production and the Condensate Challenge
• Regulatory Environment
• Crude/Condensate Processing Options
• Factors Affecting Investment Decisions
AM-15-13 Slide 2
U.S. Production Growth
• Since 2008, U.S. crude production has grown by over 4 MMBPD – Vast majority of this production growth has been
from light tight oil development
• Natural gas production has also grown rapidly • This has resulted in
increasing amounts of condensate and NGL production
3
4
5
6
7
8
9
2007 2008 2009 2010 2011 2012 2013 2014
Prod
uctio
n (M
MB
PD)
PermianNiobraraEagle FordBakkenAll Other
AM-15-13 Slide 3
Source: EIA
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
29
29.5
30
30.5
31
31.5
32
32.5
33
1985 1990 1995 2000 2005 2010 2015
Sulfu
r (w
t %)
API G
ravi
ty
API Gravity Sulfur (wt%)
Crude Quality Mismatch
AM-15-13 Slide 4
Source: EIA
U.S. refining system “heavied-up” crude slate,
Importing price-advantaged heavy crude
Domestic production
has reversed this trend
Presentation Outline
• U.S. Production and the Condensate Challenge
• Regulatory Environment
• Crude/Condensate Processing Options
• Factors Affecting Investment Decisions
AM-15-13 Slide 5
U.S. Crude Export Regulations
Liquid hydrocarbons from underground reservoirs that have not been processed through a crude distillation tower
1. To Canada for local use 2. Alaska/U.S. flagged vessels for ANS 3. Crude Swaps 4. Heavy California crude/25 MBPD
Presidential determination that it is consistent with national interest
Outlined in 1975 Energy Policy and Conservation Act and 1979 Export Administration Act
Crude Oil
Export License
Required
Pre-Approved
Case by Case
Intermediates / Products
Export License
Not Required
5. Processed Condensate exports – recent BIS “clarification”
AM-15-13 Slide 6
Condensate Classification
Wellhead
Natural Gas Processing
Plant
Liquids
Raw Natural Gas
Plant Condensates
(NGL/Y Grade)
Condensate
Lease/Field Condensate
“Condensate” Grade Crude Oil
(API 45°+) (TM&C: 50°+)
Crude Oil
Natural Gas
Not Exportable
Exportable Product
AM-15-13 Slide 7
Condensed Liquids
“Crude Distillation Tower” • Law states crude must be processed through a “crude distillation
tower” before it can be exported
• In June 2014, news came out that two companies were issued private BIS rulings, allowing for export of “stabilized condensate”
• BIS released FAQs in December 2014, laid out factors evaluated when determining minimum processing requirement: – Material transformation using evaporation/condensation – Change in API gravity – Change in % hydrocarbon in product streams – Whether product streams have alternate uses besides export
(blendstock, petrochemical feedstock, etc.) – Distillation process uses temperature gradients, significant internal
structures (trays/packing) and has differentiated output streams – Process goes beyond equipment required to separate vapors and
liquids for transportation needs
AM-15-13 Slide 8
Presentation Outline
• U.S. Production and the Condensate Challenge
• Regulatory Environment
• Crude/Condensate Processing Options
• Factors Affecting Investment Decisions
AM-15-13 Slide 9
Overview of Options
• Several levels of processing – Field level stabilizers – Centralized stabilizers – Crude/condensate fractionators (splitters)
• Refinery processing of LTOs – Primary outlet for domestic production thus far – Will shift some if exports increase or as projects
come on-line
AM-15-13 Slide 10
Field Stabilizer
• Processing at or near wellhead • Intended to strip light ends
from “wild” crude/condensate for transport/storage
• Produces two streams, overhead mixed LPGs and stabilized bottoms stream
• Low complexity, skid mounted and package designed
Field Stabilizer
AM-15-13 Slide 11
Centralized Stabilizer
• Located at/near transportation hubs (pipeline, rail, port)
• Larger than field stabilizers • Towers are more complex,
with packing or trays (simple crude distillation tower)
• May have one or more product side draws (naphtha, etc.) in addition to overhead LPGs and stabilized bottoms stream
Centralized Stabilizer
AM-15-13 Slide 12
Crude/Condensate Fractionator
• Located at/near ports • Intent to export some/all
products • Similar to conventional refinery
crude distillation tower, requires substantial infrastructure
• Often run by midstream operators on take-or-pay agreements
• Produce LPGs, naphthas, distillate and VGO
Crude/Condensate Fractionator (Splitter)
AM-15-13 Slide 13
Refinery Processing
• While dedicated condensate processing is growing, to date refiners have absorbed nearly all production growth
• The shift in crude qualities, including condensates, has prompted refiners to invest to maximize throughput – Variety of upgrades to maintain/increase capacity – Colleague Jim Jones presenting on Delek Refining
expansion tomorrow morning (9:00 AM)
AM-15-13 Slide 14
Modifications For LTO Processing
•Required modifications are very refinery specific
Pre-flash Tower
Distillation Tower Capacity Increase
Overhead Cooling and Light Ends Processing
Upgrades
Naphtha/ Distillate Treating Capacity Increases
AM-15-13 Slide 15
Presentation Outline
• U.S. Production and the Condensate Challenge
• Regulatory Environment
• Crude/Condensate Processing Options
• Factors Affecting Investment Decisions
AM-15-13 Slide 16
Supply & Demand Balance
• Global condensate production has doubled since 2007 – Led by Middle East and U.S. growth
• Condensate demand growth greatest in Asia
– Korea, China and Singapore biggest consumers – Majority of condensate imported from Middle East
• Over 1 MMBPD of condensate processing
capacity built globally since 2006 – Additional 400 MBPD anticipated through 2018 – Middle East projects will reduce condensate exports
AM-15-13 Slide 17
2014 Global Condensate Trade Flows
The Drivers For Domestic Processing
• U.S. supply/demand mismatch – U.S. refining – significant conversion capacity – Gasoline surplus – lessens naphtha demand or
the incentive to produce more gasoline – Petrochemical – U.S. demand primarily C1-C3, limited
naphtha/condensate consumption vs. Europe/Asia
• U.S. crude export restriction – Limited market for unprocessed condensate
• Refinery feedstock or for export to Canada as diluent
– Limited potential for crude swaps
AM-15-13 Slide 19
Economic Considerations
• Location – Proximity to crude production, product markets and export facilities – U.S. Gulf Coast has ideal infrastructure/market – Also allows for easy segregation of processed
condensates for export (for stabilizers)
• Feedstock quality – Drives product yields
• Relative crude price • Product demand
8%
29% 34% 27%
32% 35% 36%
20% 19% 23%
15% 9% 6% 4% 3%
0%
20%
40%
60%
80%
100%
Eagle FordCondensate
Eagle FordCrude
WTI Crude
LPG
LSR
Naphtha
Distillate
Gasoil*
*Gasoil cut quality varies, affects product value and market. AM-15-13
Slide 20
Economic Considerations (cont’d)
• Historical look at fractionation profitability – Looked at light sweet crude and condensate on USGC – Fractionation was profitable on average over past
several years – Cracking refinery remained more profitable through
same period
• Backcast is hypothetical – Skewed, does not account for price relationships
• Both crude/condensate and product market impacts
– Assumptions on transportation and operating costs
AM-15-13
Slide 21
Conclusions
• U.S. production growth has prompted industry investment – Refinery upgrades/expansions – Dedicated stabilizer/fractionator projects – Processing economics dependent on export policy
• Several key factors remain: – Impact of low crude prices on global product demand – Demand growth, primarily in Asia and Latin America – Level of crude/condensate production – Level of processing required for export – Market impacts on stabilizer vs. fractionator economics – Middle East export competition – Domestic vs. international and crude vs. condensate
discounts
AM-15-13 Slide 22
Presenter
Ryan M. Couture Senior Consultant
2100 Ross Ave, Suite 2920 Dallas, TX 75201
214.754.0898
turnermason.com
AM-15-13 Slide 23
