Pricey condensate splitter plans appear to be on track despite recent US rulings expected to create a surge in exports of condensate, which needs to be processed, but not through splitters.
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However, uncertainty over export policy could ultimately impact some plans.
The splitter picture is "still developing," Barclays analyst Michael Cohen said, adding that projects beyond 2015 may be the most at risk.
It remains unclear, Cohen said, how much market there is for splitter-made products such as propane and ethane, as opposed to demand for processed condensate, which a firm could export directly from a field condensate stabilizer.
"Until there's a little more clarity around the regulatory issue, in addition to the market issue, then I don't think these projects are likely to continue to be put online at the pace people think," Cohen said.
This uncertainty was on display during earnings calls, where company executives revealed that while they were still planning to build condensate splitters, those plans could be altered by the US Department of Commerce's decision to allow Pioneer Natural Resources and Enterprise Products Partners to export processed condensate. Commerce ruled this condensate could be exported without a license because it was lightly refined in a distillation tower and no longer fell within the definition of crude oil.
"I think as far as future splitters are concerned, it's going to make the potential people who utilize those splitters probably think carefully about whether they want to proceed," Kinder Morgan CEO Richard Kinder said. He noted his company's plans to build a 100,000 b/d splitter on the Houston Ship Channel are still on track.
Joe McCreery, a vice president with Martin Midstream Partners, said that due to the recent Commerce rulings, Midstream's plans for a 50,000 b/d condensate splitter in the Corpus Christi, Texas, market "continues to evolve."
McCreery indicated that the splitter, estimated to cost $175 million-$200 million, is now being built to meet Commerce's "exportable standard," which the agency has not detailed publicly.
Citing national security concerns, Commerce has not made its condensate rulings public, and it remains unclear precisely how these firms are processing condensate through a distillation tower. It is clear, however, that this distillation processing can be launched quicker and far more cheaply than through a condensate splitter, which splits light oil into components such as naphtha and distillates.
A field condensate stabilizer, for example, would cost a few million dollars to build, have an operating cost of 50 cents-$1/barrel and can be built within a year, consultants Turner, Mason & Co. said. On the other hand, a condensate splitter could cost as much as $400 million, take nearly two years to build and have operating costs of $1-1.50/b.
While the US has only one dedicated condensate splitter facility, Total's 75,000 b/d splitter in Port Arthur, Texas, there are at least five projects proposed in Corpus Christi, Texas, and along the Houston Ship Channel.
Targa plans to bring a 35,000 b/d splitter online in 2016, and CEO Joe Bob Perkins said it expects to finalize permit details for that facility this quarter.
"Although we understand why outside interest is very high and we're getting questions about it, our splitter project is not impacted by the US Commerce Department's private letter rulings," Perkins said during an earnings call.
Still, the agency's orders have caused confusion within the refining industry and created a pause in investment decisions, Marathon Petroleum CEO Gary Heminger said. Marathon plans to build a 25,000 b/d condensate splitter in Canton, Ohio, and a 35,000 b/d splitter in Catlettsburg, Kentucky.
"We believe that our industry has the ability to handle much more of the light shale crude oil and condensate than is processed today," Heminger said during an earnings call. "But the investments to do so will not likely be made in the environment of uncertainty that has been created."
Michael Mears, CEO of Magellan Midstream Partners, said Magellan was ensuring the profitability of its planned 50,000 b/d Corpus Christi splitter amid export uncertainty through creative contracting.
"The nature of that contract provides customers the right to renew upon expiry at considerably lower rates, which we believe will be attractive regardless of our nation's stance on condensate export capabilities," Mears said on an earnings call, adding that while it was not seeking its own export approval, it was aware of potential customers seeking their own.
Several companies are waiting on similar rulings from Commerce like those that Pioneer and Enterprise received, and some are seeking assurances they can export their own condensate without a license.
The interest in exporting processed condensate may also create an increase in demand for more infrastructure to move this condensate as well as for new distillation units to meet Commerce's processing requirements.
"It hasn't yet come to the scale of materiality in what we see from a bookings perspective, I want you to be clear," Bradley Childers, CEO of midstream company Exterran Holdings, said during an earnings call. "But there definitely is a shift and some interest in those products, as a result of the possibility for export."