Gary Hunt | Sep 07, 2014 12:51AM ET
The shale revolution at work today across the oil and gas industry was made possible by scrappy entrepreneurs risking their own capital and futures to pursue opportunities from onshore exploration and production in tight oil and gas formations and shale plays that the larger majors and super majors ignored. While the biggest players went offshore in the deeper water looking for big reserve growth, these revolutionaries used commercially available technologies available to them in 3D seismic imaging, horizontal drilling, and hydraulic fracturing to change the industry—and the world.
The big shift in the shale revolution at work today may be the oil industry response to the growth in oil supply mix especially the light hydrocarbon condensate resulting when drilling lowers the temperature and pressure in a reservoir changing the gas that naturally forms into light liquid hydrocarbons.
While natural gas can be exported as LNG, crude oil exports, on the other hand, are banned in the US. It is unknown if or when the crude oil export ban will be lifted. Meanwhile, shale oil supply growth onshore has to go somewhere and along with it comes more and more condensate heading toward the US Gulf Coast. This is another example of how the shale revolution is turning energy markets on their head.
North America oil production growth from tight oil continues to place pressure on the industry to increase infrastructure investment to keep pace. There is a lot of condensate in the oil fields of the US these days—so much so that it causes congestion as Gulf Coast pipelines and storage infrastructure tries to keep up with the volume. Finding a home for increased volumes of condensate is a growing concern across the industry. Increasing storage levels in the Gulf Coast is putting downward pressure on Louisiana Light Sweet (LLS) prices.
h3 Why is condensate disrupting oil markets?/h3Condensate is a mixture of light liquid hydrocarbons formed from gas in underground reservoirs when pressure and temperature decrease with drilling. It is sold often at a discount to other crude types such as West Texas intermediate or Louisiana Light Sweet (LLS) in the changing oil markets.
Condensate is classified as crude oil with an American Petroleum Institute (API) gravity of 50 degrees or higher. Crude oil is classified by density where the higher the number the lighter the crude type. So, for example, light crudes would be above 38 degrees, intermediate crudes are 38-22 degrees and heavy crude oils are 22 degrees or lower.
The process of refining condensate into oil products extracts value from the potential uses made of it. Limiting the amount of condensate in the system or getting condensate through the supply stream fast makes room for higher value added crude oil. The oil industry factors shaping the market potential for condensate include:
The shale revolution in the US is expected to increase US oil and gas onshore production through at least 2020 when it is expected to peak. By then conventional supply from deepwater Gulf of Mexico and Canadian oil sands is expected to pick up the slack.
But crude oil prices are set in global markets and thus have not fallen like US domestic natural gas prices. That probably explains why the fastest growing onshore plays are the combination ones that produce both natural gas and crude oil. Why? Because combo plays offer the potential for profitable growth across a range of petroleum products from dry gas to natural gas liquids, from heavy black crude oil types to light sweet crudes and an even lighter crude petroleum product called condensate.
This discussion of condensate growth in the onshore oil stream is evidence the shale revolution is also at work transforming the oil business as it has for natural gas. In Canada, the enormous production potential for oil sands especially when combined with onshore US tight oil and shale growth, and expected return to deep water Gulf of Mexico production suggests that North America will be a global energy leader for years to come.
h3 How is condensate changing oil product economics?/h3
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