Crude Exports Clarified in Commerce Department Guidelines

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The Obama administration opened the door for expanded oil exports by saying a lightly processed form of crude known as condensate can be sold outside the U.S. without government approval.

The publication of guidelines today on the website of the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws, and may lead to more U.S.-produced oil being sent overseas.

The announcement though doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.

“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 e-mail. “But it does show how they’re thinking about exporting at least some of our light products.”

Oil producers have been testing a four-decade-old prohibition on oil exports as domestic production has surged on the technological advances that have opened up shale rock formations to development in Texas, North Dakota and elsewhere.

The department earlier this year signaled a new way to export oil by approving permits for Pioneer Natural Resources Co. and Enterprise Products Partners LP to sell condensate, a type of light oil, overseas after it had been processed in a distillation tower.

‘Floodgates’ Opened

The guidelines could “open the floodgates to substantial increases in exports,” Citigroup Inc. said in a research note. Total U.S. production of light and ultra-light crude oil now exceeds 3.81 million barrels a day, and exports could reach 1 million barrels daily by the end of 2015, Citi Research said.

Eric Hirschhorn, under secretary of Commerce for industry and security, said in a statement the guidelines clarify how the department will implement export rules and follow a “review of technological and policy issues.”

In addition to approving applications, the government also allows companies to “self-certify,” that is, to export their products without seeking the permission if they think the law allows for the exchange.

Billiton Plans

BHP Billiton Ltd. will sell oil from Texas to foreign buyers without first getting the approval of the Commerce Department to do so, according to a person familiar with the company’s plans.

Navin, who is a partner at Boundary Stone Partners, a Washington-based consulting firm, said some companies may now be reluctant to self certify because violations of export laws carry criminal penalties. The guidelines released today could ease those fears, he said.

The American Petroleum Institute, which represents companies including Exxon Mobil Corp., said the guidelines were helpful but that the broader restrictions that remain in place “limit our growth as an energy superpower.”

The guidelines released today, as answers to FAQs or frequently asked questions, say that condensate can be exported if it is run through a distillation tower, which separates the hydrocarbons that make up the oil.

The process must materially transform the oil, by “using heat to induce evaporation and condensation, into liquid streams that are chemically distinct from the crude oil input,” according to the FAQ.

The oil’s gravity, or its density, also must be changed by the process, according to the department posting.

Processed products like gasoline and diesel fuel can already be exported under U.S. laws.