Soaring output of light condensate in the United States has crushed refining margins for naphtha and added to the global gasoline surplus. But it is also providing a boost to Canada’s oil industry, which increasingly benefits from a captive source of the diluent needed to make bitumen and heavy oil flow through processing facilities and pipelines.
In the past two years, collapsing gas prices have forced drilling companies in the United States to shift from targeting dry gas fields to liquid-rich plays containing a mixture of gas and more valuable crude oil and condensate to keep paying the bills.
The result has been an upsurge in output of very light liquid fuels variously described as light condensate, drip gas, pentanes plus or natural gasoline, which compete head one with the light naphtha traditionally produced by oil refineries, an essential component in the production of both motor gasoline and petrochemicals.
The sudden increase in availability of light hydrocarbons like pentane (which has five carbon atoms) and hexane (six carbon atoms) has crushed refining margins for light naphtha in North America, and added to downward pressure on the naphtha market worldwide.
It is also worsening the global refining imbalance, which is producing too much gasoline and not enough diesel, pushing gasoline prices to a discount and worsening the outlook for older refineries in North America and Europe.
As U.S. prices for naphtha and natural gasoline fall, more and more of the surplus condensate is being exported to Canada for use in the production and transportation of bitumen and heavy crude oils, where it is being added as a diluent to improve viscosity and help them flow more easily through the processing and pipeline system.