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Condensate is an ultra-light crude oil near the vapor point.
Because of the limited set of products that can be made from
condensate, it typically trades at a discount to other crude oils.
One exception being in western Canada where condensate has become a
critical part of the heavy oil transportation system. In its
natural state, bitumen produced from the Canadian oil sands is not
able to be transported by pipeline and it must be upgraded into
lighter synthetic crude oil or diluted with lighter hydrocarbons to
reach market. Condensate has become the preferred blending agent.
Blending agents are not free, and the lower density of condensate
compared to other blending options, such as light conventional
crude oil, means less of it is required to meet pipeline
transportation requirements. The most common ratio of bitumen to
condensate is about 28% diluent to 72% bitumen or on a per barrel
of bitumen production about 0.39 barrels of condensate are
required.
Meeting oil sands diluent demand has become a large business in
western Canada. As seen in Figure 1, in 2019 about 1.9 MMb/d of
bitumen required about 750,000 b/d of diluent. This is a three-fold
increase from a decade ago, when demand was 250,000 b/d.
Figure 1
Oil sands diluent demand exceeds regional supply and imports
from the United States have grown alongside of Canadian oil sands
output. Most of this demand is met with pentane plus or condensate,
with smaller volumes of refinery naphtha, synthetic crude oil and
light sweet crude oil also being sourced as diluent, as noted in
Figure 2. In total about 70% of oil sands diluent demand is met by
condensate with about four-fifths of this being supplied by
domestic producers. The remainder—about 125,000 b/d in 2019 -
is imported up from the United States. Imports make their way from
the US via one of two inbound pipelines: the Cochin pipeline, with
a capacity of 95,000 b/d, or the Southern Lights pipeline, with a
capacity of 180,000 b/d. NOTE: Pipeline capacity numbers come
from the Canadian Energy Regulator.
Figure 2
This unique relationship between oil sands production and
ultralight crude oil has resulted in a price premium for condensate
in western Canada as opposed to a discount in other markets. It is
also an actively traded product with buyers throttling their buying
based on regional prices. In turn diluent can impact the value
producers ultimately receive for their oil. These attributes make
for a very interesting aspect of the western Canadian oil market.
Traders closely watch regional demand, density of domestically
sourced condensate which can impact blend rates, cost, and import
volumes.
The new Canadian Condensate Fundamentals service from IHS Markit
summarizes the short- and long-term outlooks for the condensate
market including pricing, supply slate, and supply-demand balance.
Additionally, the service reviews the condensate stream quality,
blending rate, imports, and diluent breakdown by type. This service
will be published as part of IHS Markit's Crude Oil Markets North America
and NGL Markets North America
services, and updated quarterly.
Celina Hwang, Senior Research Analyst, North American
Crude Oil Markets, IHS Markit Bill Rawlusyk, Executive Director, North American NGL
Markets, IHS Markit Kevin Birn, Vice President North American Crude Oil
Markets, IHS Markit
Posted 03 Feb 2021
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
