Plains All American - Enterprise Products Eagle Ford Crude Oil Pipeline Joint Venture

Plains All American Eagle Ford Assets
Plains All American Eagle Ford Assets

Plains All American and Enterprise Products announced an Eagle Ford crude oil pipeline joint venture this past weekend. The deal provides that the two companies will consolidate portions of previously announced projects. Between the two companies, they have long-term commitments of 210,000 barrels per day.

The joint venture will include 140 miles of crude oil and condensate pipeline that will extend from Gardendale in La Salle County to Three Rivers in Live Oak County, then continuing on to Corpus Christi and an Enterperise Station in Wilson County. The pipeline is planned for potential capacity of 350,000 b/d.

In Corpus Christi, the pipeline will tie into a marine terminal with storage capacity of 1.8 million barrels. In Wilson County, the pipeline will tie into Enterprise's Eagle Ford crude oil system that continues on to Sealy, TX.

Read more from the Plains' press release at paalp.com

Eagle Ford Oil Prices Trade at a Premium to WTI - Condensate Weaker

Oil Drum
Oil Drum

Eagle Ford oil prices realize a nice premium to WTI and higher API condensates trade at a discount. One of the great advantages the Eagle Ford has over other shale plays is location, location, location. A short commute to the nation's petrochemical backbone means operators realize better oil prices than most areas of the U.S.

Eagle Ford Shale Oil Price Premium

Eagle Ford oil prices trade at a premium to WTI or a discount to LLS depending on who you talk to. Over the past two months, posted Eagle Ford prices have traded at a ~$6-8 premium to WTI and a ~$6 discount to LLS posted prices. That's after spending part of April and May at >$10 premium to WTI and almost parity with LLS.

Eagle Ford Condensate Prices Trade at a Discount to Crude Oil

In 2011, over 36% of reported liquids production from the Eagle Ford was considered condensate and as much as 50% of production today is estimated to be condensate. That's a significant portion of production, so it's important to understand its pricing. A recent article by RBN Energy provides more details in regards to condensate pricing.

....there are 3 principal markets for condensate: (a) sale as crude oil, (b) sale as diluent for heavy crude blending, and (c) processing in a splitter and sold as component products. Refiners find condensate less attractive as a crude oil blend because it produces less of the valuable middle distillate blends. The diluent market is attractive but requires shipment to Canada. Some of the Eagle Ford condensate is being shipped south to Corpus Christi by pipeline and then by barge up the Gulf Coast to St James LA and on up the Capline pipeline to Canada. Midstream players in the Eagle Ford are also developing condensate processing facilities. At the moment, however, we can see from Plains All American posted prices that refiners are paying less for Eagle Ford condensate than they do for crude and then applying a gravity adjustment factor to reduce the price they pay for condensate even further.

Using Plains All American posted crude oil and condensate prices, the RBN articles compares 60.1 API Eagle Ford condensate to crude with a 40-44.9 API:

The average posted condensate to crude discount this year was close to $17/Bbl.

You can read the full write up on crude and condensate prices at RBNEnergy.com

The discount for condensate from crude is ~$12/bbl now, but it has stretched over $20 at times in the first two quarters of the year. Putting both the crude and condensate price pieces together we have a better picture of what operators are being paid in South Texas. Crude oil is more marketable and can easily displace imports at refineries. Add optimal location and it receives a premium to WTI. Condensate with an API of 60+ has more limited use and is trading at a discount to crude and WTI. Overall, with an assumed 50/50 split of crude and condensate production in South Texas, operators are still realizing prices better than WTI. Consider the major operators who can negotiate crude prices pegged to LLS and South Texas liquids are fetching an even better premium to WTI.

Share your experience or thoughts in the comment section below.

Important Notes:

Condensate has an API gravity of 50+ and falls between natural gas liquids and crude oil on the hydrocarbon spectrum. Condensate is largely produced at the wellhead, but some volumes are captured in gathering systems. 

WTI prices are currently trading at a discount to comparable international benchmarks (Brent). That is the opposite of the historical norm. Cushing, Oklahoma, is lacking adequate infrastructure need to move oil to the Gulf Coast and other demand centers. When that problem is alleviated, we'll likely see a shift in WTI prices, which will change the discussed relationship of WTI and Eagle Ford crude.

BP - Kinder Morgan Sign Long-term Eagle Ford Processing Agreement

Kinder Morgan Galena Park Terminal Photo
Kinder Morgan Galena Park Terminal Photo

Kinder Morgan announced on July 19, 2012, the company will provide long-term condensate processing services and storage at terminals located in the Houston Ship Channel. BP will lease 750,000 barrels of storage and has committed 40,000 barrels per day of condensate that will be split into its light and heavy napthas, as well as kerosene and gas oil.

To accommodate, Kinder Morgan will spend $75 million to add storage at its Galena Park Terminal. Five tanks that connect to the condensate facility, new pipes and pumps will will be part of the expansion.

While the agreement was described as long-term, the actual length of the contract was not released. You can read the full press release at KinderMorgan.com and can read more at our BP Eagle Ford Shale page.

Electric Power Consumption in South Texas – Growing Due to Eagle Ford Development

Power consumed by month- MW hours
Power consumed by month- MW hours

In response to client inquiries, I've estimated the rate of growth for electric power consumption in the Eagle Ford area. The client is interested in pipelines running in close proximity to high-voltage AC power lines. By looking at the “Electric Reliability Council of Texas” (ERCOT) website and mining their data for counties in South Texas, here are some interesting facts:

1. For the South Texas region including Maverick, Zavala, Atascosa, Live Oak, Bee, Goliad and Refugio Counties, and all counties south of that line, electricity demand has grown at least five percent a year from 2008 through the end of 2011. The growth from 2010 to mid-2012 has been eight to ten percent a year;

2. The Rio Grande Valley’s general growth in population appears to be about two percent per year. Corpus Christi is growing at about one percent a year; Laredo is probably growing at three percent per year. These estimates come from what appear to be credible internet sources. So more generalized population growth in South Texas may be two percent a year, in the population centers mentioned above;

3. What this leaves, for explanation of recent growth rate, is the Eagle Ford Shale development – which affects all of the counties along the northerly line of this “South Texas” geography, and many more counties southward. And it’s just the southwest half of the Eagle Ford that gets described – I did not gather data on Wilson, Karnes, DeWitt, Gonzales and other prolific Eagle Ford counties to the northeast.

Power Lines Carry More Power to Supply the Growing Population

Just as important is how much of this new electric consumption is focused on a dozen or so counties and maybe 20 cities. For instance, the city of Carrizo Springs, in Dimmit County, has probably grown, in terms of “overnighting” residents, from about 6,000 to more than 30,000 people between 2009 and the present. This means that high-voltage AC power lines into the Carrizo Springs area are carrying more than five times the average power than in earlier times. And that accounts only for the typical residential and light commercial usage. What additional electric loads have been added for major new businesses, industrial processes, large motors and pumps on new water wells, new salt water disposal well operations, and so on?

The infrastructure build-out to support this Eagle Ford Shale boom is much broader, and more complex, than any one business person or engineer can grasp. We hope that the water and sewer utilities, the electric power generation and distribution companies, the state and county road authorities, and the telephone and data carriers are all focused closely on this growth. The growth has been clearly described, too, as having at least two phases. There is the heavy surface access, drilling, midstream and other infrastructure development time, which probably will extend another five to seven years out in front of us. Then there is the long-term production – “lift and move oil, condensate and gas” operations, maintenance and repairs – time-frame, which used to look like 10 to 20 years from the present, and now looks like 25 to 35 years. We can call this development and production work sustainable for at least 25 years, and possibly much farther out into the future.

Planning is Essential in Avoiding Shortfalls

Unless all these entities are planning and investing in ongoing and smart fashion, there are going to be periodic and painful shortfalls, bottle-necks, and logistical snarls . . . Cooperative planning, good communications, and visionary people are needed across the landscape – in private business, in the affected city, county and state offices, in the politicians’ meeting spaces, and in civic organizations. A lot of common good stands to be achieved, for many, many South Texas communities. I believe in market forces to allocate resources and labor and work effort. But such”infrastructure” things as roads, and electricity, and water and sewer utilities don’t grow well unless there is good planning and communication, and cooperation between public and private entities.

And back to the high-voltage power lines: as they also grow in capacity and reach, they may represent substantial corrosion risks to adjacent pipelines – a problem Chapman Engineering has described in an earlier blog piece - “AC-Induced Corrosion on Pipelines in the Eagle Ford Shale.”

Recycling Waste Water is Big Business

About one-third of the water used to complete a well flows back when the well is brought to production.  The rest is produced throughout the life of the well. Recycling waste water is a shift for the industry.  Historically, waste water was disposed of through treatment plants, injection wells, and evaporation ponds.

Recycling Waste Water Answers Many Concerns

As the volume of water used in hydraulic fracturing has grown, operators have explored alternate solutions. The popularity of recycling water is growing as operators look for a cheaper solution to drilling deep injection wells, as they look for more environmentally friendly options, and as they combat concerns of scarce water.

You can read more at our Eagle Ford Water page and this mysanantonio.com article that details a few companies offering new solutions.