TOKYO -- Prices for condensates, superlight oil recovered mainly from natural gas reservoirs, are stuck in high gear in Asia amid growing speculation that its demand as a petrochemical industry feedstock will increase.
Condensate prices typically move in tandem with the Dubai oil benchmark. Until two years ago, they stayed around $2 a barrel below Dubai crude. But over the last six months, the pattern has inversed, with condensates hovering $2-3 above the benchmark.
Condensates, which contain lighter compounds and can be turned into naphtha and gasoline, are processed at regular refineries and also used to make raw materials for petrochemical products such as synthetic fibers. Some 40-50% of condensates consumed in East Asia are used by the petrochemical industry, according to an official at a major trading house.
In South Korea and Singapore, three new plants that manufacture paraxylene for use in beverage bottle plastic and polyester fibers are going on line this month, leading to speculation that demand for condensates in the region will grow.
Paraxylene traded at $1,700 a ton in 2011, as demand for its use in fibers expanded. The new plants will use a total of around 400,000 barrels of condensates a day, suddenly boosting the region's demand around 30%. East Asia-bound condensates from Qatar amount to 1.2 million to 1.5 million barrels.
An unstable condensate supply would impede paraxylene output, ultimately hobbling the manufacture of polyester and other petrochemical products. "The pace of the supply increase for paraxylene will undershoot the initial forecast," said an official at JX Nippon Oil and Energy. Amid this murky outlook, paraxylene prices are ricocheting between $1,100 and $1,500 on the spot market.
Meanwhile, in the U.S., where shale gas production is soaring, the condensate supply is rising as well, prompting the U.S. government to lift an export ban. Trader Mitsui & Co. has purchased 400,000 barrels and other large trading houses have put out feelers.
U.S.-made condensates could help bring down prices in Asia. "For now, (U.S.) exports to Asia are no more than 1% of the condensates on the market," said a trading house official. Whether to boost shipments to several hundred thousand barrels a day will be a political decision for Washington. Until then, the Asian market will likely remain tight.