Redefining Refining & U.S. Government Policy: Analysis

By George Backwell
Monday, June 30, 2014
US Crude Oil Production by Grade: Source Poten/EIA

A recent WSJ article and BIS permits raise questions and highlight the debate as to what constitutes processing, or refining, or manufacturing, which would make certain hydrocarbon streams to be eligible for export. Poten & Partners explore further in their latest 'Poten Tanker Opinion' as follows:

This week’s kerfuffle was prompted by a Wall Street Journal (WSJ) article that boldly claimed:

“The Obama administration cleared the way for the first exports of unrefined American oil in nearly four decades, allowing energy companies to start chipping away at the longtime ban on selling U.S. oil abroad.”

Well, that’s one way to sell newspapers. While not entirely true in the way the WSJ would have one believe at first blush, the express permission via a Private Letter Ruling by the Department of Commerce Bureau of Industry and Security (BIS) that grants two companies, Pioneer Natural Resources Co. and Enterprise Products Partners LP, the ability to export stabilized condensate does raise some existential questions.

The grey area results from the apparent catchall definition of condensate. Condensate is a petroleum liquid defined by an API gravity range (50-55°, up to that of NGLs) that is generally painted in two broad strokes: plant condensate or lease condensate.

The BIS defines lease condensate as crude oil, and as such, it is subject to export restrictions. Lease condensates are often stabilized at the extraction site in order to remove some of light ends. Plant condensate, on the other hand, is separated from natural gas when it is removed at a gas processing plant.

In a nutshell, the WSJ article and BIS permits raise questions and highlight the debate as to what constitutes processing, or refining, or manufacturing, which would make these hydrocarbon streams to be eligible for export.

Many companies have already been investing in condensate splitter capacity to do just that. By lightly processing ultra-light crude oils or lease condensates, the material can then be exported. Does the BIS precedent then make these projects for naught? It is tough to say at this point.

The 40-year ban on exports that is referenced by the WSJ applies to crude oil. According to the BIS US Code Title 15 CFR 754.2, “ ‘Crude oil’ is defined as a mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonite, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded.”

As many people are aware, there are exceptions to the rules. The US regularly exports crude oil to Canada, as permitted through export licenses, not unlike those recently granted to Pioneer and Enterprise. Additionally, the re-export of foreign oil (read: Canadian barrels) is permitted.

It is reported that there are about 1 million barrels per day of total condensate produced in the United States; about 640 kbd is the unmanufactured lease, or field, type. The EIA estimates that crude oil production for the API 45° and higher will see the highest proportional growth rate over the next two years, see Fig. 2. [reproduced here].

Poten's conclusions
The takeaway from this is twofold. One, this could be the first real inkling of Washington getting real hip to the ability of producers to find ways around arcane regulations and two, a multi-billion dollar industry could potentially change overnight with the stroke of a pen.

For shipowners, this throws one more wrench in a slowly turning policy wheel. While an actual reversal in the export ban is very unlikely before the mid-term elections in November, these developments should be taken seriously.

The public reaction, seemingly muted at the moment, may suggest that crude oil exports are more palatable than was historically assumed. Regardless, the highly politicized nature of the petroleum markets in America make long-term betting on structural trade flows, and the shipping sectors that support them, risky business.

Source: Poten & Partners


 

Maritime Reporter August 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

MOL & Viken in Shuttle Tanker Ownership J/V

Mitsui O.S.K. Lines, Ltd. (MOL) says it has decided to establish a ship-owning joint venture with Norway's Viken Shipping AS  to participate in a shuttle tanker project.

Cruise Ship Gets Within 298-miles of the N. Pole

Hapag-Lloyd Cruises say that their expedition ship 'Hanseatic' has set a new record for passenger ships in the Northeast Passage, when the 122.8-metre-long ship reached the northernmost point at 85°,

MNZ & AMSA Award McMurdo COSPAS-SARSAT Contract

McMurdo Group’s Techno-Sciences Inc. says it has been chosen by the Australia Maritime Safety Authority (AMSA) and Maritime New Zealand (MNZ) to deploy their next-generation

Tanker Trends

MOL & Viken in Shuttle Tanker Ownership J/V

Mitsui O.S.K. Lines, Ltd. (MOL) says it has decided to establish a ship-owning joint venture with Norway's Viken Shipping AS  to participate in a shuttle tanker project.

Newbuilding Orders: Summer Lethargy Lingers

Despite some anticipation in increased activity as the summer holidays come to an end, there are just two orders to report this week both focused on the more specialised markets,

Algeria in Talks to Export Crude to Venezuela

Algeria is in talks to export crude oil to fellow OPEC member Venezuela, Algerian Energy Minister Youcef Yousfi said on Tuesday, confirming a Reuters report. Last week,

Logistics

Shell CEO: US Should Export Oil, Embrace Global Markets

The head of energy company Royal Dutch Shell said on Tuesday that U.S. policymakers should lift the crude oil export ban because allowing the shipments would make global energy system more stable.

Evergreen Upgrades its Intra-Asia Service Network

Evergreen Line announced it will partner with Mariana Express in launching a joint South China- East Malaysia (SEM) Service. The new initiative will give a boost

Logistical Scenario Analysis for Hydrodynamic Applications

To calculate the operability of the whole logistics chain, rather than only individual operations, MARIN has developed the hydrodynamic scenario analysis program ScenSim.

Consulting

Fogal Retires from Zentech After 57 Years in O&G

Robert “Bob” “Sonny” Fogal, Jr., one of the icons in the offshore oil and gas industry, has decided to retire from front-line work as Zentech’s Director of Business Development.

Nanotechnology & Big Data: New Review

A report commissioned by the Lloyd’s Register Foundation, reviewing the potential implications of nanotechnology on the safety and performance of engineering assets

TNO Receives 'International Media Award for Prevention'

The Engagementgame developed by TNO in collaboration with partners is the winner of the 'International Media Award for Prevention' in the category Multi Media.

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Navigation Offshore Oil Port Authority Ship Repair Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1351 sec (7 req/sec)