Refiners lobby Obama administration against condensate exports

WASHINGTON — Four refiners are lobbying the Obama administration to overturn recent rulings that allowed companies to export an ultra-light oil known as condensate once it has been minimally processed.

The Bureau of Industry and Security’s decision to issue those confidential orders to two Texas-based firms earlier this year bucks longstanding restrictions on exporting raw crude, the refiners insisted in a letter Thursday to Commerce Department officials.

Nothing warrants this “wholesale departure from existing crude export policy through . . . the stealth of private letter rulings,” said the group of refiners, including Dallas-based Alon USA, Parsipanny, N.J.-based PBF Energy, Delta Air Lines subsidiary Monroe Energy, based in Trainer, Pa., and Philadelphia Energy Solutions.

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The coalition, dubbed Consumers and Refiners United for Domestic Energy, takes issue with the Commerce Department’s decision to affirm that even limited processing of condensate is sufficient to transform that hydrocarbon into an exportable petroleum product, rather than a raw crude blocked from overseas sales.

Although the recipients of those rulings — Pioneer Natural Resources and Enterprise Product Partners — are believed to be using some distillation equipment to separate natural gas liquids from the condensates, the refiners group says that falls short of what is required to produce a finished petroleum product. The coalition asserts the processing is tantamount to using a relatively inexpensive field stabilizer to remove some of the lightest and most volatile hydrocarbons from condensate — a far cry from running the oil through large and costly crude distillation units at modern refineries.

It is asking the Commerce Department to re-evaluate the two private rulings and “announce its conclusion that the use of a stabilization unit for crude oil or condensates fails to meet the definition of distillation (under federal law) and further, that the export of such stabilized crude and condensates is prohibited.” The refiners said that kind of announcement would signal to the market that there would be no further exceptions granted for lightly processed crudes and condensates.

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Major facts about the confidential orders remain hidden from view, limiting other oil producers from simply copying Enterprise and Pioneer’s now-blessed approach and thwarting critics eager to mount an argument against the rulings. It is unclear exactly how much distillation the two companies told the Commerce Department’s Bureau of Industry and Security they would employ on condensate they plan on exporting.

But a recent presentation in Washington, D.C., the lawyer who represented Enterprise, Jacob Dweck, stressed that under current law, lease condensate and other hydrocarbon mixtures are no longer considered crude oil if they are processed through a distillation tower. And he said the condensate distillation process covered by Enterprise’s ruling is substantial, going beyond simple stabilization and “akin to the front end of a refinery.”

It results in at least two separate streams of mixed natural gas liquids and “does much more than stabilize the product,” said Dweck, a lawyer with Sutherland, Asbill & Brennan. And, he noted, when companies start with condensate — rather than heavier crude — the resulting streams from even a limited distillation process can be used as products.

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In their letter to the Commerce Department, the refiners argue that the process Dweck described still falls short of “a true crude distillation process (that) separates out a full array of product streams.” Condensate processed in this less-intense way is essentially still raw condensate, they say, in much the same way a soda remains soda even when it has lost the carbonation that makes it fizz:

“My friend gives me a bottle of Coke on a warm day, and his only request is that I drink and not sell it. I then give the bottle a shake, take off the cap to release some of the fizz, replace the cap and sell the Coke in compliance with his request because this is no longer the same substance, but now a new product: ‘Flat Coke.'”

Several oil producers and midstream companies have requested similar rulings from the Bureau of Industry and Security, with at least some of those applications now being “held without action.” While that hold status is a normal step in the bureau’s regular procedure, it has fanned worries among some would-be exporters that the Obama administration may be looking to pull back from the bureau’s initial approach.

The crude export ban — created in the wake of the 1973 OPEC oil embargo — is far from absolute, with exceptions for some Californian and Alaskan crude, foreign-origin oil that has passed through the U.S. and exports to Canada. It also does not apply to petroleum products, such as gasoline, diesel and jet fuel.

U.S. refiners generally benefit from the current policy, which allows them to buy discounted domestic crude and then sell any resulting gasoline for world prices around the globe.

CRUDE coalition letter on condensates