Analysis: Australia to further consolidate major condensate supplier status in Asia
Australia looks set to further consolidate its status as one of the major crude oil and refinery feedstock suppliers in the East Asia-Oceania market, as the country continues to increase its ultra-light crude exports amid rapid growth in condensate production from a slew of new LNG projects.
Numerous Asian refiners and petrochemical companies have been increasingly relying on Australia for ultra-light crude oil to feed their condensate splitters over the past several years.
The Oceania producer exported 30.72 million barrels of condensate over January-April, up 11% from 27.63 million barrels sold in the same period a year ago, and 39% higher than 22.08 million barrels exported during the first four months of 2017, according to data from Australia’s Department of the Environment and Energy.
Export volumes will likely continue to trend higher in tandem with the rapid growth in the country’s oil and gas output.
Production of condensate from the country’s latest LNG project, Prelude FLNG, was ramping up just months after the project’s startup in Q1, with Asian end-users welcoming the project’s addition to an already well-supplied condensate pool.
Two Aframax-sized condensate cargoes were scheduled to be lifted from Prelude in August, one each held by equity holders Japan’s Inpex and project operator Shell. This was up from around one condensate cargo per month in previous months.
Inpex has already sold its cargo, its first equity parcel from the project, to an end-user in Oceania, S&P Global Platts reported earlier, while the status of Shell’s cargo is unclear.
Inpex and Shell’s August-loading cargoes marked the fourth and fifth to come from Prelude FLNG since the first cargo was shipped in late March.
Closer to the present, the third condensate cargo is set to be shipped in the coming days onboard the Aframax Aktea. The ship was seen west of Australia’s Darwin as of 11:00 am Singapore time Thursday, sailing towards Prelude, Platts trade flow software, cFlow, showed.
It is estimated to arrive around July 12, according to cFlow.
AMPLE SUPPLY, PRODUCTION
Prelude’s arrival will add to an already well-supplied Asian condensate market due to a wave of giant LNG projects that have started up in Australia in recent years, among them Gorgon, Wheatstone and Ichthys. The market has occasionally struggled to clear these extra barrels.
Together with Prelude, these new projects have added an estimated 4-5 million b/month of condensate into Asia. Australia’s condensate production jumped 51% year on year to 25.5 million barrels in the first four months of the year, the Department of the Environment and Energy data showed.
The Prelude FLNG project has a production capacity of 3.6 million mt/year of LNG, 1.3 million mt/year of condensate and 0.4 million mt/year of LPG.
Prelude will be competing more with extra-light crude or heavy condensate grades in Asia, as compared with conventional condensates such as Australia’s North West Shelf condensate, one of the lightest condensates in the world.
While Shell has not made an assay publicly available, trade sources said Prelude’s quality was likely similar to the Ichthys condensate. Both Prelude and Ichthys are produced in close proximity, in the Browse basin off Western Australia.
The Ichthys condensate is considered a heavy condensate, with a gravity of around 50 API, sulfur content of 0.09% and residual yield of 15%, according to a preliminary assay from project operator, Inpex.
WEAK PRICE DIFFERENTIALS
However, Australian condensate suppliers may not necessarily see their cargoes fetch healthy spot price differentials in the regional market as light distillate product margins remain weak in Asia.
Most recent trades for August-loading cargoes of NWS condensate, Asia’s most liquid condensate grade, were reportedly done at discounts of around $5-$5.50/b to Platts Dated Brent, FOB last month.
The CFR Japan naphtha physical crack spread against Brent crude dived to its weakest in 11 years early last month, at minus $13.625/mt on June 7. The crack spread has recovered since then to be assessed at plus $28.425/mt on July 3.
Splitter unit operators in Northeast Asia have continued to favor heavy, full range naphtha over condensates as a feedstock, as refining economics for the former were seen more lucrative due to the weak naphtha cracks.
One splitter unit source said condensate prices were “not cheap enough” as current offers for regional condensates were not competitive when compared against the physical Mean of Platts Japan naphtha basis.
Nonetheless, condensate traders noted that the recent upswing in naphtha margins will likely see subsequent traded differentials for condensate cargoes to improve going forward.
“I think [sentiment for condensates] is healthier, but depends [on] what level the next trade is going to be,” one trader said.