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 Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter April 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Chevron Suffers Loss, Plans Job Cuts

Chevron Corp. reported a first-quarter loss as slumping oil prices continued to drag down revenue. The company said that it is "on target" to lay off a total of 8000 workers by the end of 2016,

China COSCO to be First through the Expanded Panama Canal

China COSCO Shipping has won the draw for its container vessel Andronikos to make the ceremonial first transit through the Expanded Panama Canal during the waterway’s inauguration on Sunday, June 26.

Sellick Equipment to Open New Facility

On April, 20, 2016, at the young age of 97 years, Walter Sellick along with sons Howard Sellick - President, David Sellick - Vice President and grandson Colin Sellick - Systems Manager,

Tanker Trends

Floating Products Storage in Focus

For much of 2015, talk of floating storage was dominated by speculation that the contango in crude futures might support crude floating storage, says Gibson Tanker Report.

Russia Diesel Exports from Primorsk to Rise in May

Russia is set to export 1.256 million tonnes of ultra-low sulphur diesel from the Baltic Sea port of Primorsk in May, slightly up from 1.209 million tonnes in April, trading sources said on Friday.

New Shipping Firm Sets up in Vancouver

A new shipping company has established itself in Vancouver as the Vancouver International Maritime Centre (VIMC) completes its Asia tour, launching in Tokyo, Singapore and Hong Kong.

Logistics

Shipping Industry Flying On The Dragon’s Back

As the many Greek players in the shipping industry know well, the legend of Icarus tells us the dangers of flying too high. Merchant vessel earnings eventually

Panama Canal Dismisses ITF Claims

The Panama Canal has dismisses claims by the International Transport Workers’ Federation (ITF) that questions industry standards and the operation of the Expanded Panama Canal’s new locks.

Shipping, Key Ingredient of EU’s Africa Agenda

The African economy has become one of the most promising global growth markets. Shipping is taking care of the largest part of international trade and in Africa

Consulting

ICS Criticises 'Prestige’ Judgement by Spanish Court

At a meeting of the International Oil Pollution Compensation Funds (IOPCF) this week, the International Chamber of Shipping (ICS) has strongly criticised the judgement

V.Ships Wins Fortress Deal

V.Ships Offshore, part of V.Group has been awarded a ship management contract by Fortress Transportation and Infrastructure Investors LLC to provide full technical

Maersk Cuts Landing Certificate Issuance Time

* Maersk Line will introduce a simplified process for obtaining the Landing Certificates from May 1st , 2016   * Maersk line waives off the  Landing Certificate fee of INR 1000 Mumbai,

 
 
Maritime Security Maritime Standards Pipelines Pod Propulsion Port Authority Salvage Ship Electronics Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | 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: 0.0813 sec (12 req/sec)