US independent Pioneer Natural Resources and midstream company Enterprise Products Partners have confirmed that the US Commerce Department has authorized them to export condensate from Texas' Eagle Ford shale field.
In what could demonstrate a new flexibility in enforcement of the US' decades-old crude export restrictions, Commerce's Bureau of Industry and Security (BIS) signed off on the companies' plans to ship out condensate that has undergone light processing in distillation towers.
The US tightly controls exports of domestically produced crude. And since the 1960s, the federal government has defined condensate as crude.
US law allows companies to export refined products without a license. Senate Energy and Natural Resources Committee ranking Republican Lisa Murkowski (Alaska) and other proponents of easing the export restrictions have been urging the administration to start with condensate, which chemically resembles natural gasoline or naphtha, products which can be exported without a license.
The BIS allows exports of processed condensate. At issue for the companies was the degree of processing the agency would require for the condensate to quality for export.
Pioneer officials met with regulators earlier this year to discuss its method for processing Eagle Ford condensate. Pioneer produces 43,000 b/d of oil equivalent (boe/d) from that formation, much of it condensate – an ultra-light hydrocarbon of 50°API or higher.
To meet industry standards for safe storage and transport, Pioneer stabilizes that condensate in central gathering facilities using a distillation unit that lowers vapor pressure and removes volatile lighter hydrocarbons. BIS determined Pioneer's process was sufficient for its condensate to qualify as a refined product.
Enterprise likewise uses a distillation tower to process its condensate. The company's process is a step beyond simply separating out contaminants but does not involve using a splitter. Enterprise officials interpreted the regulations to mean they would not need a license to export the condensate processed in this way. But a company spokesman said "we felt it was important to get confirmation that our interpretation was correct."
Last night, the Commerce Department acknowledged that condensate processed through a distillation tower would no longer be deemed crude.
The White House conceded today it was caught off guard as the issue of condensate exports came to a head. "There has been some misunderstanding out there. The fact is there has been no change to our policy" on crude exports, the White House said.
The US oil industry has been watching with intense interest to see if the US administration would relax the oil export controls in the face of growing domestic production. US bank Morgan Stanley called BIS' approval of Pioneer and Enterprise's plans to export their processed condensate "another false alarm."
But Morgan Stanley noted that the "success in arguing that a lightly processed condensate is a refined product shows the administration is being thoughtful about the crude export issue. Given this approval, we would expect other producers to be more aggressive/creative with export applications as well."
The development shows that the US industry has found "effective means of minimally processing these condensates to separate them into products to be able to get them out the door," American Fuel and Petrochemical Manufacturers chief industry analyst Joanne Shore said.
The US has limited exports of crude since passage of the Energy Policy and Conservation Act in 1975 in the wake of the Arab oil embargo. Subsequent legislation added additional restrictions. Under US law, the BIS must license the bulk of crude exports, although oil transported along the Trans-Alaska Pipeline System is exempted.
Canada is the US' dominant crude export market. The US exported 120,000 b/d last year, 119,000 b/d of which moved north to Canada, according to US Energy Information Administration (EIA) data.
BIS also has granted licenses for exports of California heavy crude headed to Asia Pacific and Alaska Cook Inlet crude. And the government allows the re-export of foreign crude that has not been mixed with domestic oil. The agency will approve export licenses if firms can demonstrate their crude shipments cannot reasonably be marketed in the US.
EIA estimates US condensate production reached nearly 749,000 b/d in 2012, up from about 633,000 b/d in 2011.
But production could rise significantly because of increased condensate output from the Eagle Ford shale in Texas. The formation produced 200,000 b/d of condensates in 2013, 120,000 b/d more than in 2011, the Texas Railroad Commission said. US consultancy RBN Energy put total US condensate production above 1mn b/d last year, thanks to output from Eagle Ford and the Permian, Anadarko, Bakken and Utica formations.
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