June 26, 2014 10:48:54 AM
NEW YORK -- Companies are taking advantage of new ways to export oil from the U.S. despite government restrictions, and in the process helping the U.S. become an ever bigger exporter of petroleum on the world stage.
The Obama Administration has opened the door to more exports -- without changing policy -- by allowing some light oils to be defined as petroleum products like gasoline or diesel, which are not subject to export restrictions.
Although U.S. production has boomed in recent years, the nation still consumes far more crude oil than it produces and remains heavily dependent on imports. But the crude being produced by U.S. drillers in recent years includes types of oils that don't have a big market here. This has the oil industry and some politicians calling for an end to crude export restrictions, which were adopted after the 1973 Arab oil embargo.
Economists generally agree that lifting the restrictions would benefit the U.S. economy, but the ban remains a touchy political subject because of the fear -- unfounded, most analysts say -- that lifting the ban on exports will raise gasoline prices for U.S. drivers or compromise U.S. energy security.
Most experts believe the restrictions will not be overturned this year because of the coming midterm elections.
In the meantime, companies have searched for ways to reach overseas buyers. Oil companies are increasingly exporting crude to Canada with special licenses from the Commerce Department. Other types of light oils known by names such as "diluent" and "condensate" are -- or will soon be -- finding their way overseas too.
"Add it all up and you get to 1.1 million barrels of potential exports of crude out of the U.S. without changing the law, without changing the system," said Ed Morse, head of commodities research at Citigroup.
That would make the U.S. a major oil exporter and add to its growing volume of fuel exports. The Energy Department reported earlier this month that U.S. crude exports reached 268,000 barrels per day in April, its highest level in 15 years. Last year the nation exported a record 2.7 million barrels of fuels per day, making the U.S. the world's largest exporter of gasoline, diesel and other fuels.
When an ultra-light oil called "lease condensate" comes out of the ground it is considered a crude oil by regulators. But companies must run the substance through distillation equipment that removes dissolved gases in the oil and stabilizes it for transportation through a pipeline. It then becomes something called "processed condensate."
The industry and regulators have also considered this a type of crude, because it must be further refined to be used to make chemicals or fuels, and it is not currently exported.
But the Commerce Department, in response to inquiries from Pioneer Natural Resources and Enterprise Products Partners, said that the processing required to prepare the oil for transport is enough to allow this process condensate to be considered a petroleum product, and therefore eligible for export without restriction.
Pioneer said in a statement Wednesday that the ruling, which is not public, "Confirmed our interpretation that the distillation process...is sufficient to qualify the resulting hydrocarbon stream as a processed petroleum product eligible for export without a license."
The Obama Administration said Wednesday there has been no change in its crude export policy. "We are closely studying the economic, environmental and security challenges" posed by oil exports and will evaluate changes to U.S. policy as needed in the future," said White House spokesman Josh Earnest.
Condensate is generally split into its specific chemical constituents, such as butane, ethane, and propane, and then sold to chemical companies to make into plastics, or to refiners as ingredients for fuels.
Condensates or other light oils from the U.S. are also expected to be exported through another means -- as a substance called diluent that is mixed with heavy Canadian crude to make it match the requirements of overseas refiners.
Even large-scale exports of these condensates are expected to have little or no effect on fuel prices for U.S. consumers. Condensates aren't a major component of most fuel production, and prices for U.S. fuels are subject to global market forces because they can be exported freely.
"It's not credible to say that if we export more condensates that would cause a spike in prices at the pump," said Citi commodity strategist Eric Lee.
The American Petroleum Institute, a lobbying group that represents oil companies, said the rulings do not change its contention that the restrictions on crude exports should be lifted.
"It certainly doesn't address the major issue," said Kyle Isakower, vice president for regulatory and economic policy at API. "We still have this mismatch of crudes in the U.S., a glut of light sweet crude and no refining capacity to take it."
The rulings do affect one glut, however. The price of condensate is cheaper than global crude by $10 to $30 a barrel because so much of it is being produced by U.S. drillers working in shale formations, particularly in South Texas, and it has had nowhere to go -- until now.
"These products need a home," said Enterprise Products Partners spokesman Rick Rainey.
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