[westexas]

If actual crude oil in storage (45 and lower API gravity) is reaching catastrophically high levels, why are we still importing about 44% of the crude oil feedstock for refineries?

I looked up some US Crude + Condensate (C+C), US C+C refinery input and net C+C import numbers for comparison (all four week running average data), with the same C+C refinery inputs (15.4 mbpd):

Week ending:

7/3/08

US C+C Production: 5.1 mbpd
US C+C Refinery Inputs: 15.4
US Net C+C Imports: 10.0

1/30/15:

US C+C Production: 9.2 mbpd (Up 4.1)
US C +C Refinery Inputs: 15.4 (Flat)
US Net C+C Imports: 6.9 (Down 3.1)

Note the gap between the increase in production (4.1) and the decline in net imports (3.1).

Another way to view it is as the sum of US C+C production and net C+C imports as a percentage of C+C inputs, 98% for early July, 2008 (15.1/15.4), versus 105% for late January, 2015 (16.1/15.4). Note that the net C+C import number would take into account gross C+C exports.

As the Pemex CEO said in the article linked below, they need crude, not condensate.

So, if the total data for the past few years show a sustained excess of C+C production plus net C+C imports versus C+C refinery inputs (and said excess would presumably be mostly condensate), where would the excess domestic production be going?

Just as we don’t know for sure what the Condensate to C+C Ratio is for production, we don’t know what that ratio is for storage, and there does seem to be a mismatch between US crude oil import numbers and storage levels.

If actual crude oil in storage (45 and lower API gravity) is reaching catastrophically high levels, why are we still importing about 44% of the crude oil feedstock for refineries?

Recall what the CEO of Pemex said last year about their need for light crude oil imports, because of declining production, “Condensate is not necessarily what Mexico needs. It needs crude.”

I would argue that this statement is probably true for most refiners around the world.

Reuters: Mexico’s Pemex aims to start importing light crude this year (2014)
http://uk.reuters.com/article/2014/08/2 ... TL20140828

Aug 28 (Reuters) – Mexican state-owned oil company Pemex wants to launch light crude oil imports later this year, potentially reaching up to 70,000 barrels per day (bpd) and aimed at boosting refinery output, the head of its commercial arm said.

The imports would mark an abrupt shift from a decades-old devotion to crude oil self-sufficiency in Mexico, long a major exporter to the United States. It also comes after a sweeping energy sector overhaul which seeks to reverse many years of declining output and export volumes.

“Our objective is that (crude imports) will begin this year,” said Jose Manuel Carrera, chief executive officer of PMI Comercio Internacional, Pemex’s oil trading arm. His comments are the strongest signals to date on both the timing and potential volumes of light crude imports to Mexico. . . .

While U.S. companies Pioneer Natural Resources and Enterprise Products Partners have secured permission to ship a type of ultralight oil known as condensate to foreign buyers, Carrera all but ruled out the possibility.

“Condensate is not necessarily what Mexico needs. It needs crude,” he said.

I think that the following chart showing normalized global gas, global NGL and global C+C from 2002 to 2012 really tells the tale, and I suspect that a significant portion of the global build in “Crude oil” inventories may be rising condensate levels.



Peak (Crude Oil) in Rear View Mirror?

OPEC dry gas production increased from 41 BCF/day in 2005 to 62 BCF/day in 2012 (EIA, complete 2013 data not yet available), an increase of 21 BCF/day.

Comparing OPEC (crude only) and EIA data bases (C+C) implies that OPEC condensate production increased from 1.2 mbpd in 2005 to 2.3 mbpd in 2012, an increase of 1.1 mbpd.

This was be an observed increase of 52,000 barrels of condensate (BC) per BCF/day increase in gas production, for OPEC.

The EIA shows that global dry gas production increased from 270 BCF/day in 2005 to 325 BCF/day in 2012, an increase of 55 BCF/day.

If we use the OPEC condensate to gas ratio as a guide, this implies that global condensate production rose by about 3 mbpd from 2005 to 2012. The EIA shows that global C+C rose by 2 mbpd from 2005 to 2012, which of course would imply a decline in actual global crude oil production (45 and lower API gravity crude oil).

Note that the high volume of US condensate would fall in the non-OPEC data set, so in reality the non-OPEC BC to BCF/day ratio is probably higher than the OPEC data set.

In any case, the foregoing analysis is additional support for the premise that actual global crude oil production (45 and lower API gravity crude oil) probably peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

[GHung]

Propane prices; last year and this year (EIA). Will 2015 prices crash after the heating season ends?



Also, how much of these NGLs are blended into winter gasoline, and what happens when the switch to summer blends occurs? Will we see a greater glut of NGLs while gasoline prices increase?

[westexas]

Note the increase in annual ending US C+C stocks (stocks at the end of the year):

http://www.eia.gov/dnav/pet/hist/LeafHa ... ESTUS1&f=A

Looks like 2014 was 385 mb, about 60 mb more than at the end of 2008.

It seems to me that the only reasonable explanation for why refiners are still importing about 44% of the C+C inputs into US refineries is that they have to in order to produce the mix of refined petroleum products that they need.

In other words, I suspect that an across the board drawdown of US C+C inventories would not give them the refined product mix that they need. They could of course do a selective drawdown of the actual crude component of C+C inventories, but they may not be able to do that, at least not without putting them below a comfortable level of Days of supply of actual crude oil in excess of MOL (Minimum Operating Level).

[ROCKMAN]

"If actual crude oil in storage...is reaching catastrophically high levels, why are we still importing about 44% of the crude oil feedstock for refineries?" I really don't understand where they get that "catastrophically high" tag from. Let’s assume 100% of all US storage capacity is filled. And...? So it's filled and thus every bbl coming into the country goes directly into a refinery for cracking whether it comes out of storage or off a tanker. Of course, if prices were to surge up the oil in storage could be sold for a slightly lower price. But given the relatively low volume of storage compared to US consumption that dynamic wouldn't last very long.

A catastrophe would seem to imply someone being severely hurt. I don't see anyone suffering as a result going into storage. With respect to oil prices the global storage capacity is tiny compared to daily oil consumption. And consider this: every bbl that has gone into storage is a bb the oil produces would not have sold otherwise. IOW the storage oil has helped out the revenue dynamic for all oil producers. So again: who's being hurt?

[Paulo1]

One more reason to start keystone XL while there are some trades and machinery available this downturn. That bitumen needs thinning, right? And Oil Sands product needs a market. The prices won't stay down, forever. I can see if this window is lost, (which some will applaud until they face gas shortages for their Prius), the surplus will be used domestically in Canada and surplus exported from both coasts. It just makes sense to supply US refineries in search of heavy feed stock; they already exist and need supplying.

[Pops]

Thanks wt.
The question I have is if much of the excess production is condensate, and refiners don't want it, why is anyone buying it and paying to store it on a contango bet? I would think that if condensate prices are lower than other weights, they would buy the crude to store since the return would be higher on the storage cost?

Anyway, here is a tech article I found, the subject is condensate storage but it had this item:

Condensate has many uses, but the primary uses are selling as a diluent in heavy crude blending, processing in a splitter into individual components, and selling as crude oil for refining. The volume of U.S. crude production that is actually condensate rose from 11 percent in 2011 to 14 percent at the end of 2012, according to the EIA. However, some industry analysts have noted that as much as 70 percent of the “crude oil” production stream in resource plays such as the Eagle Ford Shale rightly should be classified as condensate, based on API gravity specifications.

[Pops]

LOL, it just dawned that Jeffrey Brown may be the "industry expert" referred to in the story.

[westexas]

Rock,

My post was basically in response to Ed Morse's call for a $20 WTI price (emphasis added):

Citi: Oil Could Plunge to $20, and This Might Be 'the End of OPEC

http://www.bloomberg.com/news/articles/ ... d-of-opec-

The recent surge in oil prices is just a "head-fake," and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. 

Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.

A pullback in production isn't likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range "for a while," according to the report. The U.S. shale-oil revolution has broken OPEC's ability to manipulate prices and maximize profits for oil-producing countries.

[westexas]

Pops,

Note the large decline in distillate yield and the corresponding rise in gasoline yield, just going from 39 API gravity crude to 42 APi gravity crude (labeled as "Condensate" on the following graph). The most common dividing line between crude and condensate seems to be at about 45 API gravity.



And the following chart of global crude oils, in terms of sulphur content versus API gravity, tops out at 40 API:



Given the refinery yield chart, the question I would ask is why would the comment by the CEO of Pemex not be representative of virtually every refiner in the world?

“Condensate is not necessarily what Mexico needs. It needs crude,” he said.

[Pops]

So who is buying the condensate to store?

[forbin]

For the reader

Definitions of crude oil/Petroleum

Acceptable ranges are as follows:

Light: less than 870 kg/m3 (greater than 31.1o API)
Medium: 870 to 920 kg/m3 (31.1o API to 22.3o API)
Heavy: 920 to 1000 kg/m3 (22.3o API to 10o API)
Extra-heavy: greater than 1000 kg/m3 (less than 10° API)


Condensate has an API gravity ranging between 45 to 75 degrees. Those with a high
API contain lots of NGLs (including ethane, propane and butane) and not many of
the heavier hydrocarbons. These condensates are clear or translucent in color.
The condensates with a lower API gravity down at the 45 degree level look more like
crude oil (black or near black) and have much higher concentrations of the heavier C7,
C8 and heavier compounds.

I believe Westexas uses 45 API because EIA definition is that.


observation = BoE , barrel of oil equivalent definition

42 U.S. gallons or 158.9873 litres

5.8 × 10.6 BTU59 °F equals 6.1178632 × 109 J, about 6.1 GJ (HHV), or 1.7 MWh.

If one considers the lower heating value instead of the higher heating value, the value for one BOE would be approximately 5.4 GJ (see ton of oil equivalent).

One BOE is roughly equivalent to 5,800 cubic feet of natural gas or 58 CCF. The USGS gives a figure of 6,000 cubic feet (170 cubic meters) of typical natural gas.[2]

NOTE: Thus when seeing figures of 90 million BoE you are not talking of crude oil here.

refer to http://en.wikipedia.org/wiki/Natural-gas_condensate

Uses of Crude oil

Product Refined Gallons/Barrel
Gasoline 19.3
Distillate Fuel Oil (Inc. Home Heating and Diesel Fuel) 9.83
Kerosenes & Jet Fuels 4.49
Residual Fuel Oil 2.10
Petroleum Coke 2.10
Liquified Refinery Gases 1.89
Still Gas 1.81
Asphalt and Road Oil 1.13
Petrochemical Feed Supplies 0.97
Lubricants 0.46
Waxes 0.04
Other Products 0.34
Processing Gain 2.47
Source: EIA March 2004 Data

Uses of Condensate ( composition varies on source )

As t here is no clear definition of the condensate. This have proven difficult . From what I read you get the
NGL as mention plus drip gas or natural gasoline ( that Benz used to fire up the first ICE ) . Today's modern engines require much higher octane ratings .

Napthia appears to be the common product between crude and condensate

-----

Its a fascinating subject I encourage all to investigate - enjoy !

Forbin

[westexas]

Pops,

That's a good question. I suspect that we may be seeing the cumulative storage impact of US C+C production plus net crude oil imports being slightly in excess of C+C inputs into US refineries.

It would be very interesting to see a graph of the ratio of the US condensate price to the WTI price since 2008.

[forbin]

Pops said

So who is buying the condensate to store?

mores the point are they storing it near you ?



Forbin

[ROCKMAN]

Something that should be very obvious just occurred to me. First, is an "oil glut in the US" defined as the US producing/importing more oil then we consume? I get the impression that's how most here define it. If so the US has had an "oil glut" for many years including those times when prices were bouncing well above $100/bbl. For a long time US refiners have been producing much more product then Americans have been consuming. When we were paying twice as much for gasoline as we are now US motorists were still consuming less then oil companies had to sell. Last year when we had a "glut" of 3 million bopd the price was almost double what is today. IOW US refiners were producing (and exporting) the products made from those 3 million bopd because as our citizens were unable to consume all of it.

[ROCKMAN]

forbin - Perhaps an even more important question: how is condensate being stored? Also I think folks are overestimating the lack of demand for condensate. For instance without condensate not one bbl of the 3 million bbls per day of Canadian imports would be flowing threw pipelines today.

Reuters - Condensate has been coming in from gathering systems for years and has been handled in different ways. However, the industry’s focus on liquids-rich resource plays has elevated the focus on condensates and how they should be handled. Numerous factors–varying from economical to environmental drivers–have contributed to this change in priorities, but U.S. condensate production has increased in step with activity in shale plays. Condensate is lighter than crude oil, but heavier than natural gas liquids. The issue with condensate in its natural form is that the lighter hydrocarbons can make it dangerous to store and transport. Therefore, stabilizing is required to allow the condensate to meet specifications. Often, the condensate is pumped to a sales storage tank, where it will flash off its lighter hydrocarbon components, which usually are captured through vapor recovery compression in order to prevent venting to the atmosphere, which results in lost revenues and potential emission issues.

Different operators process their condensate in different ways, based on their commercial considerations and operational preferences. Regardless, plant equipment has to be designed around a clear-cut basis, and preparations need to be made to make the project move as quickly as possible. The U.S. Energy Information Administration describes lease condensate as “a mixture consisting primarily of hydrocarbons heavier than pentanes that is recovered as a liquid from natural gas in lease separation facilities.” This category excludes natural gas plant liquids, such as butane and propane, which are recovered at downstream processing facilities. Condensate nomenclature tends to be puzzling because different terms are sometimes used to describe the same thing, and in some instances, the same name is used to describe different compositions. An example of this is NGLs referred to as y-grade, plant condensate, natural gasoline, compression liquids, and cryogenic liquids, to name only a few.

Growing Condensate Volumes - Condensate has many uses, but the primary uses are selling as a diluent in heavy crude blending, processing in a splitter into individual components, and selling as crude oil for refining. The volume of U.S. crude production that is actually condensate rose from 11 percent in 2011 to 14 percent at the end of 2012, according to the EIA. However, some industry analysts have noted that as much as 70 percent of the “crude oil” production stream in resource plays such as the Eagle Ford Shale rightly should be classified as condensate, based on API gravity.

[shallow sand]

I read about Morse of Citi saying US storage for crude oil could be full therefore the price crash for a period.

Is this really a possibility in the next few months? I'm having a hard time finding good information on this point. As noted above, why would US refiners keep importing if they have no room to store?

This fall farmers had record harvest. Grain elevators locally had to limit deliveries at times till they could get grain shipped out, but this was short term situation and apples and oranges to crude oil, which is not seasonal, but continuous delivery.

Also got to thinking about storage calculation, assume it does not account for stock tanks at lease sites. We have about 45 days of storage capacity and on average about 1/3 is utilized. I have no clue what the industry norm is, but if that were the case 9 million x 45 days = 405 million barrels of storage capacity at lease sites with about 135 million barrels being utilized.

If anyone can direct me to places I should read further to educate myself on this issue, please do.

Is part of the reason for high storage levels the low price combined with time of year? Would make sense that US refiners would buy all they could given multi year low prices for crude, and right now is low demand period so would be building inventory for what could be high summer demand if gasoline stays at multi year lows?

[Pops]

As noted above, why would US refiners keep importing if they have no room to store?

I remember reading way back in the early Oughts that US refiners had spent billions reconfiguring to process heavy/sour crude. At the time we all took that to mean the era of light/sweet was over.

If wt and others are right and the boom in "crude" is t0o light to meet that spec then they are importing heavier stuff like the sorta-oil from Canada.

Also the frackers found an outlet on the east coast where some refineries that didn't switch to the heavier stuff (they cooked the Arabian and Louisiana Light) had shut down for a time.

[shallow sand]

Thanks for insight Pops, think westexas has referred to this many times also.

One other thought, why is US storage info able to move world wide crude prices to the extent it does? If rest of world storage drops equal to US builds, and given US exports so much refined product anyway, why does price fall or rise as much as 5% when we get the weekly figure on Wednesday?

[ROCKMAN]

Shallow: Why are refiners still importing oil? Folks need to step back and look at the big picture for a moment. Yes, at 417 million bbls the oil inventory is the highest in 80 years. And what does that really imply? Consider US refineries are currently cracking 470 million bbls of oil per month. If they suspended purchases of domestic and imported oil the entire US oil storage volume would be depleted in a little over 3 weeks. Which could never happen because the refiners need to keep a minimum volume running thru the plants to function. Not sure what that level would be but I suspect the current inventory couldn't keep the refineries running for more than a couple of weeks.

So the simple answer: refineries continue to import oil because refineries need oil to refine. LOL. IOW I don't consider having just 8% of the current annual oil consumption in storage a "glut" especially since a portion represents the MOL for the refineries. But maybe that's just me. LOL.

[westexas]

The most commonly used number for Minimum Operating Level (MOL) for Crude + Condensate (C+C) is about 270 mb.

So currently we have about 10 days of supply in excess of MOL, depending of course on how much of that oil is actually crude oil and not condensate.