After examining available regional and global production data (using EIA, OPEC and BP data sources), in my opinion actual global crude oil production - generally defined as 45 API Gravity or lower crude oil - has probably been on an “Undulating Plateau” since 2005. At the same time, global natural gas production and associated liquids, condensate and natural gas liquids (NGL), have so far continued to increase.
Schlumberger defines condensate as: “A low-density, high-API gravity liquid hydrocarbon phase that generally occurs in association with natural gas.” The most common dividing line between crude oil and condensate is 45 API Gravity, but note that the upper limit for WTI crude oil is 42 API Gravity. However, the critical point is that condensate is a byproduct of natural gas production. Note that what the EIA calls “Crude oil” is actually Crude + Condensate (C+C).
When we ask for the price of oil, we generally get the price of either WTI or Brent crude oil, which both have average API gravities in the high 30’s, and the maximum upper limit for WTI crude oil is 42 API Gravity. However, when we ask for the volume of oil, we get some combination of crude oil + partial substitutes, i.e., condensate, NGL and biofuels.
From 2002 to 2005, as annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005, global natural gas production, global NGL production and global C+C production all showed similar rates of increase. For example, from 2002 to 2005 global natural gas production increased at a rate of 3.2%/year, as global C+C production increased at a rate of 3.3%/year.
From 2005 to the 2011 to 2013 time frame, annual Brent crude oil prices doubled again, from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive, remaining at $99 in 2014. From 2005 to 2014, global natural gas production increased at 2.4%/year, while global C+C production increased at only 0.6%/year. Given that condensate production is a byproduct of natural gas production, the only reasonable conclusion in my opinion is that increasing global condensate production accounted for all, or virtually all, of the post-2005 slow rate of increase in global C+C production, but let’s examine the available data.
US & OPEC Condensate Versus Crude Oil Production Estimates
We appear to have three sources of condensate versus crude oil data:
- The Texas RRC data base (for Texas production)
- EIA estimates of US C+C production by API Gravity
- Implied OPEC Condensate Production (EIA OPEC C+C production less the 12 country OPEC crude only production).
Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes fuzzy. In any case, we have to deal with the data that we have.
Regarding US data, the EIA estimates that US 45+ API Gravity C+C production increased by about one million bpd from 2011 to 2014, and the EIA estimates that US Lower 48 C+C production in excess of 45 API Gravity was two million bpd in 2015. Based on these estimates, I estimate that US 45+ API Gravity C+C production increased from about 0.5 million bpd in 2005 to about 1.7 million bpd in 2014, an increase of 1.2 million bpd.
US natural gas production increased from 50 BCF/day in 2005 to 71 BCF/day in 2014. Based on the foregoing, US condensate production per BCF of dry gas production increased from 10,000 barrels per BCF of dry gas in 2005 to 24,000 barrels per BCF of dry gas production in 2014.
Incidentally, based on the EIA analysis, it appears that about 40% of US Lower 48 C+C production in 2015 exceeded the maximum API Gravity for WTI crude oil, 42 API Gravity.
Based on OPEC and EIA data, Implied OPEC Condensate Production increased from about 1.2 million bpd in 2005 to about 2.4 million bpd in 2014, an increase of 1.2 million bpd.
OPEC natural gas production increased from 42 BCF/day in 2005 to 68 BCF/day in 2014. Based on the foregoing, OPEC condensate production per BCF of dry gas production increased from 29,000 barrels per BCF of dry gas in 2005 to 35,000 barrels per BCF of dry gas production in 2014.
If we combine the two condensate estimates (US + OPEC), their combined estimated condensate production rose from 1.7 million bpd in 2005 to 4.1 million bpd in 2014, an increase of 2.4 million bpd. Combined condensate production per BCF of gas rose from 18,000 barrels per BCF of dry gas in 2005 to 29,000 barrels per BCF of dry gas in 2014.
The following is a summary of the foregoing data:
Natural Gas Production Data
US Natural Gas Production (BP):
- 2005: 50 BCF/day
- 2014: 71 BCF/day
OPEC 12 Natural Gas Production (BP):
- 2005: 42 BCF/day
- 2014: 68 BCF/day
US + OPEC 12 Natural Gas Production (BP):
- 2005: 92 BCF/day
- 2014: 139 BCFday
Condensate Data & Estimates
Implied OPEC 12 Condensate Production: (EIA OPEC 12 C+C less OPEC Crude Only)
- 2005: 1.2 million bpd
- 2014: 2.4 million bpd
Estimated US Condensate Production (45+ API Gravity C+C Production):
- 2005: 0.5 million bpd
- 2014: 1.7 million bpd
(EIA puts US Lower 48 45+ API C+C production at 2 million bpd in 2015, and they estimated that US 45+ API Gravity C+C production increased by about one million bpd from 2011 to 2014.)
Implied OPEC 12 Condensate + Estimated US Condensate Production:
- 2005: 1.7 million bpd
- 2014: 4.1 million bpd
OPEC 12 + US Condensate Estimates Per BCF of Dry Gas Production:
- 2005: 18,000 barrels/BCF
- 2014: 29,000 barrels/BCF
(In terms of gallons of condensate per MCF of dry gas, the condensate yield would be 0.8 gallons/MCF in 2005, rising to 1.2 gallons per MCF in 2014, if my math is correct.)
Global Condensate Versus Crude Oil Production Estimates
Global dry natural gas production rose from 270 BCF/day in 2005 to 335 BCF/day in 2014. In 2014, combined US + OPEC gas production accounted for 41% of global gas production in 2014.
If the US + OPEC condensate production estimates per BCF of dry gas production are similar to global values, it implies that global condensate production rose from about about 5 million bpd in 2005 to about 10 million bpd in 2014, an increase of about 5 million bpd. Note that global C+C production increased from 74 million bpd in 2005 to 78 million bpd in 2014, an increase of 4 million bpd.
Of course, the foregoing implies that actual global crude oil production (45 API Gravity and lower crude oil) declined from about 69 million bpd in 2005 to about 68 million bpd in 2014, as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014).
Note that the global oil and gas industry spent trillions of dollars on global upstream capex after 2005, for 2006 to 2014 inclusive (on both oil and gas projects). But if it took trillions of dollars to keep us on a post-2005 “Undulating plateau” in actual global crude oil production, what happens to global crude oil production given the large and ongoing cutbacks in global upstream capex?
What’s Actually in Those Storage Tanks?
We have seen a large year over year increase in US and global Crude + Condensate (C+C) inventories. For example, EIA data show that US C+C inventories increased by 100 million barrels from late 2014 to late 2015, and this inventory build has contributed significantly to the sharp decline in oil prices.
The question is, what percentage of the increase in US and global C+C inventories consists of condensate?
Four week running average data showed that US net crude oil imports for the last four weeks of December increased from 6.9 million bpd in 2014 to 7.3 million bpd in 2015. Why would US refiners continue to import large–and increasing–volumes of actual crude oil, if they didn’t have to, even as we saw a huge build in US C+C inventories? And again, what the EIA calls “Crude oil” is actually C+C. And as noted above, based on the EIA analysis it appears that about 40% of US Lower 48 C+C production in 2015 exceeded the maximum API Gravity for WTI crude oil, 42 API Gravity.
The most recent four week running average EIA data shows US net crude oil imports remained at 7.3 million bpd, with net total liquids imports at 5.5 million bpd, up 17% from the 2015 average annual value of 4.7 million bpd.
I frequently cite a 2015 Reuters article that discussed case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper limit for WTI crude (42 API gravity), but that are deficient in distillates. Of course, what the refiners are rejecting is the condensate component, i.e., they are in effect saying that “We don’t want any more stinkin’ condensate.” Following is an excerpt from the article:
In a pressing quest to secure the best possible crude, U.S. refiners are increasingly going straight to the source.
Firms such as Marathon Petroleum Corp and Delek U.S. Holdings are buying up tanker trucks and extending local pipeline networks in order to get more oil directly from the wellhead, seeking to cut back on blended crude cocktails they say can leave a foul aftertaste. . . .
Many executives say that the crude oil blends being created in Cushing are often substandard approximations of West Texas Intermediate (WTI), the longstanding U.S. benchmark familiar to, and favored by, many refiners in the region.
Typical light-sweet WTI crude has an API gravity of about 38 to 40. Condensate, or super-light crude that is abundant in most U.S. shale patches, ranges from 45 to 60 or higher. Western Canadian Select, itself a blend, is about 20.
While the blends of these crudes may technically meet the API gravity ceiling of 42 at Cushing, industry players say the mixes can be inconsistent in makeup and generate less income because the most desirable stuff is often missing.
My premise is that US (and perhaps global) refiners hit - late in 2014 - the upper limit of the volume of condensate that they could process if they wanted to maintain their distillate and heavier output. This resulted in a build in condensate inventories, reflected as a year over year build of 100 million barrels in US C+C inventories.
Therefore, in my opinion the US and (and perhaps global) C+C inventory data are fundamentally flawed when it comes to actual crude oil inventory data. Note that according to Iranian sources, the bulk of their floating offshore storage consists of condensate, which they were permitted to export under the sanctions. In my opinion, this suggests that we may be seeing both a US and a global glut of condensate in storage.
In any case, here is the critical point: If it took trillions of dollars to keep us on a post-2005 “Undulating plateau” in actual global crude oil production, what happens to global crude oil production given the large and ongoing cutbacks in global upstream capex?