Crude oil: is the US about to lift its export ban?

Energy , Oil , USA Jun 30, 2014 1 Comment

USA crude oilThe US government has moved towards lifting a 40-year ban on oil exports by allowing two companies to sell ultra-light oil to foreign buyers. Pioneer Natural Resources and Enterprise Products Partners have been told by the Bureau of Industry and Security that they can export the oil, known as condensate, which can be turned into gasoline, jet fuel and diesel.

So, is the US ready to ‘open the floodgates’ of crude oil export? Not quite but it is a good sign as US petroleum export policy has been disjointed for decades, with crude oil and lease condensate exports restricted, but with export of processed molecules allowed.

Confusion around the export regulations is, in part, due to a lack of simple, consistently applied vocabulary. The key focus here is the requirement of processing prior to export.

“To clarify, this ruling was not a change to the export policy as reports suggest: it was a granting of a permit,” says Harold York, Americas Downstream, Midstream & Chemicals Principal Analyst for Wood Mackenzie. “Stabilizing a liquid hydrocarbon stream is not sufficient; it must also be distilled prior to exporting.”

The Commerce Department uses a definition of crude oil with two requirements: 1) that the stuff existed in a liquid form in underground reservoirs, and 2) the stuff remains liquid at atmospheric pressure after passing through a separating facility but not through a distillation tower. Refineries are just large distillation towers, and once crude oil is passed through a refinery it is no longer considered crude oil.

What Enterprise and Pioneer have been given permission to do is run the crude oil through a distillation tower just long enough to produce stuff that is neither crude oil nor fuel. The Commerce Department’s ruling did not reveal what the two companies plan to produce and export.

In essence, the Department of Commerce appears to have ruled that the processing technologies employed by these companies meet the minimum criteria. “The ruling and actions indicate that the market is beginning to test the definitions regarding the export ban and could indicate the beginning of easing of US export restrictions, especially as it applies to lease condensates,” adds Wood Mackenzie’s Americas Refining Research Manager Michael Wojciechowski.

The agency’s ruling amounts to redefining crude in a way that applies only to a form of ultralight oil that U.S. refineries are ill-equipped to process. The executive branch couldn’t do much more than that to expand crude exports without congressional permission. Still, Commerce’s move is a step in the right direction because resuming oil sales abroad could help the U.S. economy reap the full fruits of the shale revolution that has propelled this country back into the top ranks of global oil and gas production.

At this point in time, it is still too early to determine if the United States is heading to a more open crude oil export regimen, but this would carry significant impact on the global energy markets too.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

One Comments

  1. In the visit that president Obama had in Europe several observers noted clear signs that the US may be ready to start to promote its oil and natural gas to Europe.
    Interesting these development are followed by increasing prices, at least in the short term.

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