Why some companies aren’t worried about the export ban loosening

Market Realist

Must-know: US oil industry reaction to the loosening export ban (Part 10 of 11)

(Continued from Part 9)

Midstream companies

Under the export ban, unprocessed condensates were barred from being exported. Oil producers used to resort to condensate splitters, usually owned by midstream companies, to process the condensate to produce naphtha, gasoil, and other products that could, in turn, be transformed with additional materials into gasoline and diesel, which could easily be exported to other countries.

Condensate splitters were an easy way out for producers who wanted to make use of this by-product.

However, with the loosening of the ban, condensate splitters might become redundant, since companies would want to export condensates to more advanced refineries in Asia or the Middle East. The advanced refineries would be willing to pay a premium for their product. This could be problematic for midstream companies that have invested significant amounts to construct condensate splitters.

Magellan Midstream Partners (MMP), Kinder Morgan Energy Partners (KMP), and Targa Resources Partners (NGLS) have all built or announced plans to build such splitters in Texas to capitalize on the ultralight condensates coming out of the Eagle Ford Shale. It’s important to note that all of these companies are master limited partnerships (or MLPs). They’re a part of the Alerian MLP ETF (AMLP).

In spite of the loosening of the ban, midstream names won’t lose out in the near-term. Most of them have secured firm, long-term contracts with their respective customers.

Kinder Morgan is currently building a splitter near the Houston Ship Channel that will be able to process 100,000 barrels per day of condensates under a long-term, fee-based supply contract with BP (BP). Magellan plans to construct a 50,000-barrel-per-day condensate splitter near its terminal in Corpus Christi, Texas, under a fee-based, take-or-pay agreement with Trafigura—a leading commodities trading house.

Targa plans to build a 35,000-barrel-per-day condensate splitter at its Channelview Terminal on the Houston Ship Channel under a long-term, fee-based contract with Noble Energy (or NBL).

Condensate exports won’t cause damage to midstream names in the short-term. However, it’s likely to make them redundant and make oil producers rely more on exports in the long run rather than on midstream companies.

Continue reading the next section in this series to learn about who might see negative effects from the lifting of the export ban.

Continue to Part 11

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