Defining Condensate More than Semantics for U.S. Exporters

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Researched by Industrial Info Resources (Sugar Land, Texas)--Generally, it is accepted that crude oil will have a higher viscosity than what is considered condensate, or natural gas liquids (NGLs), as it contains longer carbon-chain hydrocarbons. But what about crude oil that is made up of mostly lighter hydrocarbons? Is it still crude oil, or has it become condensate? While this may sound like an issue of semantics, it is precisely the question now being debated by regulators.

In the 1970s, during the oil shock, the U.S. government banned the export of crude oil. At the time, U.S. oil production was limited to light, sweet crude from conventional plays, meaning it had a lower viscosity and less sulfur than other kinds of crude that were being imported to the U.S. Now, the U.S. is producing not only more of the same kind of crude, but also even lighter liquids streams that begin to slip into the NGL or condensate category. With so much extra production of product that may or may not be crude oil, deciding if the 1970s' ban is applicable has become an issue of high importance to producers who would like to reach a broader market.

Two such producers, Enterprise Products Partners LP (NYSE:EPD) (Houston, Texas) and Pioneer Natural Resources Company (NYSE:PXD) (Irving, Texas), already have received permits to export oil condensate, which is condensate produced at an oil well, as opposed to a gas well, and more producers are following suit in applying for export permits. The ruling, which granted the permits, said that condensate that has been distilled is no longer considered crude oil. As such, the type of distillation process and the condensate streams of each applicant have to be studied before a decision can be made as to whether the oil condensate has been processed enough to shake the definition of crude oil, and thus bypass the ban.

The Oil and Gas Industry has more than simply two products, as its name would imply. As such, it might be more apt to call it the "hydrocarbon industry," as both oil and gas, as well as the myriad of intermediary products, is all composed of hydrocarbon molecules. Of all the hydrocarbons, only methane, a.k.a. natural gas, has a set chemical definition.

Even crude oil is only loosely defined by using age-old terminology, such as "sweet" and "sour," to approximate sulfur levels, but the exact hydrocarbon mixture in the oil is not defined or known until it goes through a refinery, as it can contain a multitude of hydrocarbons of varying sizes. Thus, the terms "crude oil" and "condensate" have the potential to overlap when dealing with light liquid streams. With the growing number of applicant producers, setting a definite line between crude oil and condensate could save regulators much time and hassle in debating the definitions, and give producers a benchmark by which to measure their processes.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.