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Energy Quote of the Day: 'The Rules Remain Outdated'

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As we reported last November, US crude oil export laws can be absurd, with policies regulating condensate exports particularly convoluted. Thus it appears two forward-thinking companies took advantage of this “squishy” legal situation to gain condensate export approval.

Deemed “private classification orders” by the Commerce Department’s Bureau of Industry and Security, the decision allows Pioneer Natural Resources and Enterprise Product Partners to export minimally-processed condensate, a hydrocarbon some consider an ultra-light crude. By processing the condensate through a stabilizer, the resulting liquid is classified as a refined product that can be exported under existing laws.

Condensate is a gas when it travels up through an oil or gas producing well, but condenses into a liquid at the surface. Condensate can also be produced through the crude oil refining process or from natural gas processing.

“Lease condensate is classified by the molecule laws as crude oil”, whereas “natural gasoline, even though it’s exactly the same stuff chemically, you can export it just fine,” explained Rusty Braziel President of RBN Energy, at the Center for Strategic and International Studies last November.

So it appears the Commerce Department ruling could motivate other companies to file similar requests and the general consensus among analysts is this ruling represents a symbolic first step toward relaxing the 39-year crude oil export ban, which is what many US producers are pushing for.

“Commerce’s decision to allow companies to process condensate and export the resulting products is a reasonable first step that reflects the new reality of our energy landscape,” Murkowski said. “The rules remain outdated, nonetheless, and should be modernized. I continue to urge the administration to fully lift the ban on crude oil and condensate exports.” – Alaska Senator Lisa Murkowski as reported by Fuel Fix

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John Miller's picture
John Miller on June 27, 2014

The (export restriction) rules may be dated, but the recent changes are obviously biased towards ‘Upstream’ (Crude Oil Production) Companies and possibly at the expense of ‘Downstream’ (Refining & Marketing) Companies and U.S. energy security.  In an ideal International ‘free market’ and ‘secure/stable’ World, the Federal Government should not be concerned with the impacts of exporting and importing oil or any other critical commodity.  After all, free trade is a major driver of many International economies; past, current and the foreseeable future.  However, the timing is not without substantial risk.  Despite the huge expansion in U.S. domestic oil (including condensate) production in recent years, the U.S. still has ‘net imports’ of 5.7 million barrels per day (MBD) or just over 30% of total consumption (‘petroleum products supplied’).  With the current and growing instabilities in the Middle East, U.S. energy security is at considerable risk; possibly to similar the levels that existed in the 1970’s – 80’s.   Re. a past TEC Post: “What are the Largest Risks to U.S. Energy Security?”.

Another factor is the impact on Downstream U.S. Refining.  Due to the increased production of lighter crude oil-condensate (blends of propanes, butanes, light gasoline and some very light distillates), many Refiners are in the process of developing and investing in processing modifications (installing new equipment) in order to efficiently, safely and cleanly process this growing domestic condensate feedstock.  The Commerce Department’s decision to unilaterally change the definition of ‘finished/refined’ products allowed for export creates a huge uncertainty and investment risk for these Downstream Refining investments.  If the Upstream Producers are allowed to export the condensate, this action effectively kills the economics of new Refining projects that would otherwise increase domestic construction and manufacturing jobs.  This action to export light crude oil condensate is likely to have a very low overall benefit to the U.S. economy under current domestic-international conditions compared to processing the condensate domestically into finished products (for domestic consumption and/or export).

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