U.S. producers of ultra-light condensate have the opportunity to gain a market share in a tightening Asian condensate market, which is expected to further tighten with the return of the U.S. sanctions on Iran's oil, Sandy Fielden, Director of Oil and Products Research at Morningstar Commodities Research, said in a note this week.
U.S. shale is typically light, and some of the basins in the Eagle Ford in Texas and the Delaware Basin in New Mexico have been producing a lot of the ultra-light condensate since 2011, Fielden noted.
Asia, meanwhile, is expanding its petrochemical capacity, and condensate is used in such plants either as a raw feedstock or to produce naphtha for blendstock for refining and for petrochemicals.
The Eagle Ford condensate produces a type of naphtha that is particularly suited to these petrochemical plants, Fielden said, noting that the major markets for this kind of condensate are Japan, South Korea, and China.
The U.S. sanctions on Iran are expected to not only cut Tehran's crude oil exports, but are also "almost certain to affect its condensate exports as well," according to Fielden.
"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. To do so would be in the same vein as Saudi Arabia increasing crude output to offset the impact of U.S. sanctions on Iran - gaining market share in the process," Fielden wrote in the note.
However, U.S. producers must act quickly if they want to grab market share, because there is competition coming from projects in Australia, Malaysia, and Vietnam, all of which are geographically closer to the key Asian markets than Texas and the Gulf Coast.
"Time is of the essence for U.S. producers to grab this opportunity, however, since several competing suppliers are knocking at the same door," Fielden wrote.
According to Bloomberg tanker tracking data, Iran's crude oil and condensate exports have dropped by more than 30 percent since April. In the first two weeks of September, Iran's condensate exports plunged to 175,000 bpd, down more than 40 percent from April, as major buyer South Korea hasn't bought any Iranian oil or condensate in more than two months, complying with U.S. efforts to bring Iran's oil exports down to zero.
By Tsvetana Paraskova for Oilprice.com
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