The production of condensate is set to continue its rapid pace of production. Concurrently, domestic demand has declined due to constrained demand from refineries . In particular, lease condensate may be particularly susceptible to this oversupply/decreased demand condition. Although lease condensate is a byproduct of natural gas drilling, it is considered crude oil by the Energy Information Administration (EIA) and the Department of Commerce and thus banned from export. This prevents creating an export market for all of the supply, something that is occurring with other NGLs such as butane. Low oil prices further hurt the near-term business case for natural gas exploration and development, including condensate.
An expanding condensate supply, driven by rapid natural gas production growth, faces slowing U.S. petrochemical demand. However, new demand enabled by condensate splitters (which make lease condensate a refined product ready for export) may provide temporary relief, pending a favorable export ruling by the U.S. Department of Commerce. Specifically, Canadian demand for condensate as a diluent is a viable outlet for growing domestic supply. If Canadian demand remains strong and the regulatory outcome is positive, the condensate market could remain a key component of natural gas profits. Alternatively, low demand for NGLs coupled with low oil prices may force natural gas investors/developers into difficult decisions to maintain margins and continue production and expansion.
Bentek Energy – Platts Oil & Gas Conference 2014
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