Falling Iranian oil exports from U.S. sanctions open the door for U.S. oil and gas producers to fill a void in Asia for a niche oil market.
Texas shale is beginning to produce more ultra-light condensate oil and there’s growing demand in Asia, said Sandy Fielden, director of oil and products research at Morningstar, in a new report this week. Iran has served as a major source for condensate in Asia.
Condensate is an ultra-light oil used for crude blending, petrochemical feedstock and more. About half of all U.S. condensate production comes from Texas, especially South Texas’ Eagle Ford shale and West Texas’ booming Permian Basin.
“Regardless of how much Iranian condensate remains available for export, the current tight conditions represent an opportunity for U.S. producers to gain valuable market share,” Fielden argued.
In addition to the sanctions, Iran also is consuming more of its condensate domestically.
U.S. producer, however, must act fast because there’s rising competition from new Australian liquefied natural gas projects that also produce some condensate, Fielden said.
“Time is of the essence for U.S. producers to grab this opportunity,” he said, “since several competing suppliers are knocking at the same door,” he added.
China, Japan and South Korea all desire large volumes of condensate to use as petrochemical feedstock.
Condensate production is on the rise in the Eagle Ford, Fielden noted, and the South Texas region doesn’t have any of the pipeline constraints facing the Permian. The Eagle Ford barrels can easily make their way to export hubs near Corpus Christi and Houston. And new Permian pipelines beginning to come online next year will help even more.
There was more interest in condensate exports prior to 2016 before Congress lifted the decades-old ban on crude oil exports because condensate was excluded from the ban. That interest is picking up again now that Asian demand for condensate oil is tightening, Fielden argued.
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