Report: Condensate could be first crack in oil export ban

WASHINGTON — A simple tweak by the Commerce Department would allow the U.S. to begin selling an ultralight oil overseas, a significant first step in easing the 39-year-old ban on crude exports, a new report says.

The analysis released by Sen. Lisa Murkowski, R-Alaska, focuses on condensate, which includes pentanes and other fuels generally produced as liquids from natural gas wells.

Though it is chemically different than crude, condensate is swept under the oil export ban — at least as long as the light hydrocarbon is coming out of oil and gas wells. Under current regulations, condensate can be freely exported if it is produced at gas processing plants.

Murkowski’s report argues that it’s time for the Commerce Department to end the dichotomy by rewriting its 1985 definition for “crude oil” so condensate isn’t covered.

“The Department of Commerce retains the authority to allow condensate exports by modernizing its regulations, as it has done repeatedly since the 1970s,” the report says. “For example, the definition of crude oil could simply be updated, aligning the regulatory architecture with the new supply mix made possible by technological advancements.”

Chipping away: Oil export ban can be lifted piecemeal

The change would help ensure a broader market for the estimated 1 million barrels of light condensate produced each day in the U.S. Most U.S. refineries are geared toward heavier crudes. And while some oil companies are steering their lease condensate to Canada’s oil sands, where it can be blended with the dense hydrocarbon bitumen for pipeline transport, there’s a limit to how much of it is needed as a diluent.

Crude export debate

Oil producers and the American Petroleum Institute have argued that exporting crude would help relieve supply bottlenecks and inefficiencies, allowing companies to sell more valuable light sweet U.S. crude overseas, while importing cheaper, heavier alternatives for refining.

Murkowski is the leading champion of the change on Capitol Hill, though Rep. Michael McCaul, R-Texas, introduced legislation Tuesday that would generally lift the crude export ban in most cases but allow it to be reinstated during national emergencies.

Some refiners are eager to preserve the current trade policy, which allows them to freely export gasoline, diesel and other petroleum products, even as lower priced American crude is widely blocked from escaping U.S. borders.

A middle ground

Altering the approach on condensate could be a kind of middle ground — even if it paves the way for bigger changes down the road. Since neither the Obama administration nor Congress is expected to make broad, wholesale changes to the crude export ban anytime soon, allowing foreign sales of lease condensate would help relieve some of the pressure.

Such a discrete step also would have political advantages — allowing the administration to make a smaller change with significant real-world meaning for oil producers, without the baggage of upending a crude oil export ban long cast as an essential safeguard for American consumers.

The government has taken similar steps before. When California oil production was shut in during the late 1970s, the Commerce Department temporarily allowed residual fuel oil to be sold overseas. And when domestic butane stockpiles climbed in 1978, the Commerce Department temporarily relaxed exports of the fuel.

Murkowski is expected to deliver her argument for easing the ban in testimony before a House Foreign Affairs subcommittee on Wednesday afternoon. HollyFrontier Corp. CEO Michael Jennings and Kenneth Medlock, director of the Center for Energy Studies at the James A. Baker III Institute for Public Policy, are also slated to appear.