Feds launch oil export studies

WASHINGTON — The federal government’s top energy analysts have kicked off their examination of issues surrounding the nation’s crude export ban, releasing a paper that examines the limited opportunities for offloading the light, sweet oil increasingly flowing out of U.S. wells.

The Energy Information Administration’s new report acknowledges the limited domestic market use for some varieties of U.S. crude, a major factor driving the current debate over selling the oil overseas.

It also highlights the wide rainbow of domestic crude production covered under the catch-all term “oil,” reflecting products with widely varying densities and sulfur contents. The report forecasts domestic production for 11 different varieties of crude oil.

For a time, U.S. refineries were able to absorb the climb in domestic production of light, sweet oil, largely by reducing their imports of similar grades. According to EIA, light crude imports fell from 1.7 million barrels per day in 2011 to 600,000 barrels daily during the first part of 2014.

Hitting the ceiling

But there’s a limit to how much like-for-like substitution refineries can make to accommodate the light, sweet crude being produced in Texas and North Dakota today, and EIA’s report suggests the United States is approaching that ceiling.

“The dwindling amount of light crude imports available to be backed out through further like-for-like substitution” means domestic producers have only a few other options for unloading the supplies, EIA said.

Options include continued shifts in the refinery input mix, as some facilities make investment allowing them to accept more light crudes. Another potential opening comes in the form of splitters capable of converting light crude into a mix of heavier fractions.

Boosting exports

But EIA says there’s a third option: “continued increases in crude oil exports,” which would allow light, sweet U.S. crude to flow out of the country, even as the nation continues importing and refining less-desirable heavier varieties.

That would require major changes in U.S. trade policy, either by the Obama administration’s Commerce Department or through Congress.

The EIA says production could dip if the U.S. ends up with a glut of light crude or ultra-light lease condensate, which generally flows as a liquid at normal temperatures even if it is a gas underground.

“A change in crude production would come into play in the event that the market value of a particular type of crude or lease condensate reaches a level where production is not economic,” EIA said.

The analytics and research firm IHS said in a report released this week that the tipping point could come for some drilling regions in just a few years.

More studies planned

The Energy Information Administration promised a deeper look at the options for domestic crude producers seeking to avoid a saturation point. That will come as part of a planned series of studies examining the economics of the nation’s existing, 39-year-old ban on crude exports.

The government’s analysis is likely to play a major role in the debate over what to do about the export ban, as oil producers implore policymakers to loosen the trade restrictions. Some have suggested a modest first step could come by relaxing the rules for lease condensate.

The EIA has promised a range of studies are on the horizon, including work analyzing:

  • the growth in U.S. oil production and trends in liquid fuels consumption
  • the impacts on oil logistics and refining
  • crude oil and petroleum product prices
  • trade patterns

There are other, non-governmental studies of the nation’s energy trade policy under way, including efforts by Rice and Columbia universities, as well as the Brookings Institution and the Center for Strategic and International Studies.

Many energy analysts have suggested any substantive Obama administration action on oil exports would come after the wave of EIA studies due out this year.