Wood Mackenzie: Setting the record straight on US crude oil exports

Wood Mackenzie

Amidst the high volume of speculation off the back of the June 24 announcement by the US Department of Commerce concerning a private ruling for Pioneer Natural Resources Co. and Enterprise Product Partners LP, a closer look reveals that the rulings upheld the definition of what is exportable, with no material change to export policy, according to Wood Mackenzie.

“To clarify, this ruling was not a change to the export policy as reports suggest: it was a granting of a permit,” says Harold York, Americas Downstream, Midstream & Chemicals Principal Analyst for Wood Mackenzie. “Stabilizing a liquid hydrocarbon stream is not sufficient; it must also be distilled prior to exporting.”

In essence, the Department of Commerce appears to have ruled that the processing technologies employed by these companies meet the minimum criteria. “The ruling and actions indicate that the market is beginning to test the definitions regarding the export ban and could indicate the beginning of easing of US export restrictions, especially as it applies to lease condensates,” adds Wood Mackenzie's Americas Refining Research Manager Michael Wojciechowski.

Wood Mackenzie's understanding is that, historically, lease condensate cannot be exported, but plant condensate, having been separated from lighter varieties such as ethane and liquid petroleum gases in a distillation column can be exported.

“The statuary definition of distillation appears to have been questioned with this ruling and the exact determination remains unclear,” York indicates. 

Wood Mackenzie maintains that there will not be a material change in the overall export policy, but has been advising its clients of potential incremental policy changes. Such milestones might include changes to the definitions of what can be exported, as is the case with condensates, or the expansion of countries consistent with the US’ national interest beyond Canada (e.g., including all Free Trade Agreement countries).

Wojciechowski notes that because of the magnitude of hydrocarbon/oil and gas production and proximity to a coast, the barrels likely most affected by the recent news are those condensates produced from the Eagle Ford key play area.

“Currently, we estimate that there are 400,000 barrels a day of condensate production in the Eagle Ford,” he comments. “Most of the production is stabilized in order to move the barrels to market, but it is unclear how much of it passes through the requisite distillation step.”

York adds that hurdles remain, as producers, aggregators, and marketers would need to keep these barrels segregated (no comingling) and pass through an already congested Corpus Christi dock if they wanted to access international markets.

“US petroleum export policy has been disjointed for decades, with crude oil and lease condensate exports restricted, but with export of processed molecules allowed,” York says. “Confusion around the export regulations is, in part, due to a lack of simple, consistently applied vocabulary. The key focus here is the requirement of processing prior to export.”



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