US Crude Oil Export Outlook

on November 06, 2014 at 12:00 PM

U.S. Trade Deficit Reaches All-Time High

The U.S. Department of Commerce’s (DOC) Bureau of Industry and Security (BIS) is the section in charge of regulating exports of crude oil. The U.S. is producing more oil than it has in the previous decades; however, a government ban on crude oil exports has created an oversupply, resulting in opportunities for numerous industry players.

The DOC BIS ruled earlier this year granting Pioneer Natural Resources and Enterprise Product Partners permission to export condensate, as it qualified as a product not covered by existing U.S. crude oil export restrictions. And a third company – BHP Billiton – was given the green light in November. Crude oil is generally barred from foreign sale and export. Distilling condensate into a refined petroleum product is a way around the current ban on crude oil exports. The DOC ruled that condensate can be exported with minimal processing, by the use of condensate splitters, which can process super-light oil into various products at a fraction of the cost compared to building multi-billion dollar refineries, most of which are currently configured to run heavier and sulfur rich oil. Recent reports indicate refiners spent upwards of $90 billion to retool facilities to process heavier and more sour (lower-quality) crude oil grades. The surge in drilling in the U.S. has created an abundance of light and sweet oil.

Crude stockpiles have climbed to record highs over the past several months. Many advocate for exporting the over-abundance of crude stemming from the increase in domestic drilling and hydraulic fracturing. The likelihood of DOC reversing its 1975 ban on crude exports remains questionable, and companies are submitting condensate export permits. Recently, the CEO of Pioneer Natural Resources spoke in favor of DOC issuing condensate export permits to other companies.

Cheniere Energy recently reported to FuelFix that it’s considering building a condensate export facility in Texas, costing upwards of $600 million. The facility, possibly located along the La Quinta Ship Channel, would have both storage and shipping capabilities, exporting products such as diesel, kerosene, and naphtha (primarily a feedstock for producing high octane gasoline in the US, but it is also used as a petrochemical feedstock, particularly in Asia).

Exporting minimally processed condensate is seen by some as a test case while the U.S. reevaluates its crude oil export ban. The U.S. will be monitored by other countries as we decide how best to take advantage of our reinvigorated supply of energy resources. This vast new supply of oil and gas has increased the energy profile of the U.S. around the globe, with politicians and industry hoping to capitalize on these new successes.

With a limited domestic market for condensate, companies are looking abroad – as with other oil and gas products. Distilled condensate has recently been exported to South Korea, Singapore and Europe. Whether there is a change in the four-decade old ban on crude exports or not, the foreign market, especially Asia, could be a strong target for condensate when US-sourced imports of the commodity are competitive with local naphtha prices.

From the policy perspective, depending on production and forecasts, broader regulations on condensate exports and a possible relaxing of the ban on crude exports could be seen within the next 18 months.