Oil exports opened after year of pressure in US

On Tuesday  Obama administration bent over to months of growing pressure over a 40-year-old ban on oil exports,
taking two steps expected to unleash a flood of shale oil onto global markets.

The Bureau of Industry and Security (BIS), the organisation which regulates export controls, said it had granted permission to “some”
companies to sell condensate abroad.

About two dozen energy companies had asked the agency for clarification on permitted exports earlier this year,
but until Tuesday those requests had been put on indefinite hold.
The Bureau  released guidance in the form of frequently asked questions, or FAQs,
to explain what kind of oil was generally allowed under the ban, the first effort by the administration to
clarify the issue that has caused much confusion in energy markets for more than a year.

The two measures are clearest signs  that the administration is ready to allow more of the thriving U.S.
shale oil production to be sold overseas, where drillers have said it can reach a premium of $10 a barrel if not more.

They follow a year of foggy messages and widespread doubt over what is or is not allowed under
a trade restriction that critics say is a relic of a past era, when oil was seen as scarce after the 1970s Arab oil embargo.

This domestic drilling boom of the past six years has turned the United States into an energy powerhouse,
increasing U.S. production by more than 50 percent and reversing decades of decline.

Output of very light oil has been very strong, leading to a overstaturation that threatens to overwhelm domestic demand.

The senior director of oil markets at research firm IHS, Jeremy Webster, said the FAQ “takes the leash off of
the U.S. Department of Commerce” and says it may take additional action on crude exports after several months of inactivity.

 

STEPS TO CLARIFY

How the measures will affect flows of petroleum is unknown, particularly given the dramatic drop in global oil markets,
where prices have nearly halved since the summer.

One of the administration officials said that the oil market,
would ultimately determine how much oil is exported. That mirrored the Obama administration’s policy on exports of
liquefied natural gas,  which are also now generally allowed.

The actions on Tuesday were “certainly not designed to add or detract from what can be exported.
We are trying to make the boundary line clearer,” said the official.

In its FAQ, on which the agency has focused most of this year,
the BIS confirmed or clarified a number of distinct issues related to the rules, including:

* Confirmation that lease oil processed through a distillation tower is considered a petroleum product,
and therefore can be exported without constraint.

* Clarification of what constitutes “distillation” for export, including the fact that pressure reduction alone,
and flash drums with so-called heater-treaters or separators, would not be sufficient to qualify oil for overseas sales.

* A reminder that most petroleum products may be “exported to most of the world without a license,”
a message seen by many analysts as blessing the process of self-certification.

* And clarification that “a minimum amount of mixing” between exportable foreign oild= and restricted
domestic oil may be allowed, a note likely making it easier to ship Canadian petroleum through U.S. pipelines and ports.

FRUSTRATION BUILDING

With no knowledge about what kind of petroleum can be shipped abroad has brought frustation to oil market players since the BIS,
an office of the Commerce Department,  gave permission in 2013 to a small company, Peaker Energy,
to export minimally treated light oil called condensate.

Last spring BIS gave permission to export treated petroleum in private letters to new two companies,
Pioneer Natural Resources Co (PXD.N) and Enterprise Products Partners LP (EPD.N).

The secret nature of the communications between the government and the three energy companies
left a lot of other drillers in the dark about investing in expensive infrastructure to process condensate.

 

Domestic pressure has also grown, and several lawmakers in the House of Representatives and Senate
have mentioned that unless energy companies can export oil to Asia and Europe, the drilling boom will
eventually die from  its own output.

Source: reuters.com

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