US Expands Oil Exports to Lightly Processed ‘Condensate’
Washington has expanded opportunities for U.S. oil producers to export lightly processed crude, known as condensate, despite a ban that’s nearly 40 years old.
The U.S. Commerce Department’s Bureau of Industry and Security (BIS) posted on its website on December 30 the procedures oil companies can follow to avoid violating the ban on exporting crude, which was imposed in 1975 because of the Arab oil embargo. Refined fuels aren’t covered by the ban.
It’s possible that this step could eventually lead to permission to export a wider variety of petroleum products, but for now, the BIS statement said nothing about ending the export ban altogether.
“It’s a long way from here to a full repeal of the export ban, and they went out of their way to stipulate that this is not, in their view, crude oil,” Jeff Navin, a former deputy chief of staff at the Energy Department, said in an email to Bloomberg News. “But it does show how they’re thinking about exporting at least some of our light products.”
It was the second time this year that the Commerce Department had expanded opportunities to export certain forms of oil. In March it ruled that crude condensate processed through a distillation tower, which separates the oil’s constituent hydrocarbons, could be exported legally. This ruling opened the door for two companies, Enterprise Products Partners and Pioneer, to export their products.
Still, export regulations remain fuzzy, so many companies have been hesitant to follow Enterprise and Pioneer for fear of running afoul of the law. And while several have applied for similar permission, their cases appear to be on indefinite hold.
But that doesn’t mean oil companies have stopped trying to find ways to export their product, now that they’ve been extracting crude from shale formations using hydraulic fracturing, turning the United States from being OPEC’s largest customer into one of its main competitors for market share.
Citigroup Inc. is among those that believe the BIS guidelines may “open the floodgates to substantial increases in exports” of U.S. crude. In a research document, the banking and financial services giant estimated that total production of light and ultra-light crude in the United States is now more than 3.81 barrels per day, and that exports could reach 1 million barrels a day by the end of 2015.
But oil companies still must be careful how they process crude oil for export. While many of the BIS guidelines seem vague, others are quite specific. The agency’s page of frequently asked questions, or FAQs, says unequivocally that light oil must still be processed before it is eligible for export. And they can’t simply put them through simple filters that separate crude’s lightest components.
The answer to FAQ No. 4, for example, stresses that “liquid hydrocarbons processed through a crude oil distillation tower are classified as petroleum products,” and therefore legal to export. But it adds, “Crude oil processed through such equipment remains classified as crude oil,” and so cannot be exported.
The BIS decision had an immediate impact on the global price of oil because it likely would contribute to the oil glut that’s seen the price of crude lose nearly 50% of its value since June. The morning after the U.S. announcement, on December 31, benchmark Brent crude fell to just over $57 per barrel.
Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.