Companies and federal officials are finding a way around a 1970s-era U.S. ban on crude oil exports by slightly processing some of the rising amounts of oil extracted from the nation's shale deposits.
Pioneer Natural Resources said Wednesday that the Department of Commerce has approved its plan to export an ultralight oil known as condensate produced in the state's Eagle Ford Shale. In processing the oil, Pioneer runs it through a distillation unit that lowers vapor pressure and removes volatile lighter hydrocarbons. Commerce "recently 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," Pioneer said. The company said it produces more than 43,000 barrels of oil equivalent per day but declined to say how much it would export.
"There has been no change in policy on crude oil exports," Commerce spokesman Jim Hock said Wednesday. He said Pioneer's approach, which stops short of refinement, changes condensate enough so that it's no longer considered crude oil. Hock notes that most petroleum products, unlike crude oil, can be exported without a license.
The U.S. government, since the 1970s Arab oil embargo, has largely banned the export of crude oil -- except to Canada -- as a way to keep the nation's oil at home and protect American consumers from price shocks. In recent years, as U.S. production has surged, oil producers have been urging the Obama administration to relax federal restrictions.
Commerce also approved the export of processed condensate by a second U.S. company, Enterprise Products Partners, said company spokesman Rick Rainey. "We don't need their approval," he said, because once processed, the condensate is not crude oil. But the company wanted to ensure its interpretation of U.S. law is correct. He declined to say how much Enterprise plans to export.
Companies such as Pioneer are investing in facilities, typically known as "splitters," that minimally process ultralight oil by boiling it and splitting it into various components such as naphtha, which can then be used to make gasoline and other petroleum products.
Kinder Morgan is building a condensate splitter in the Houston ship channel that's scheduled to open in November, and other companies including Magellan and Martin Midstream, plan to construct similar facilities along the Gulf Coast.
"It could be viewed as a work-around" of the U.S. export ban on crude oil, says Sandy Fielden, analyst at RBN Energy, a consulting firm, adding that the result is a "semi-finished product." He says the U.S. rules on oil exports are "wide open to interpretation."
He says the Commerce rulings are the first that he's aware of allowing the export of condensate.
Fielden says companies are investing in splitters because Gulf Coast refineries are best suited to refine heavy crudes, not the light or ultralight oil that hydraulic fracturing, or fracking, is extracting from shale formations.
The impact of Commerce's ruling could be significant. Light and ultralight oil accounts for a huge share of the recent growth in U.S. oil production, making up 96% of the 1.8-million barrel-per-day increase from 2011 to 2013, according to the Energy Information Administration. The EIA's new crude oil forecast indicates the supply of light oil will continue to outpace that of medium and heavy crude through 2015, accounting for more than 60% of production growth.
July 26, 2011, file photo by Gregory Bull, AP