Zachary Toliver | Shale Plays Media
Although the United States still holds onto a nearly 40 year old ban on exporting crude oil, many companies have found a pretty slick way to get some of this product out of the country, and according to the Wall Street Journal, The Obama Administration just gave the technicality an important green light.
Companies use a method called “condensate splitting” to push oil out of the country. They refine light crude oil, the majority of which is produced from shale, and the end product is something like gasoline or diesel fuel. The new product is then exempt from the ban.
In two unannounced rulings however, the Commerce Department has granted permission to Pioneer Natural Resources Co. and Enterprise Products Partners LP to ship ultralight oil. According to the Wall Street Journal, the oil is still a type of condensate, but it is not completely refined to a point of being a commercial fuel. That part is up to the buyer overseas.
What is more important here, though, is what these sneaky tricks and loopholes say about the U.S. They are harsh reminders of the Infrastructure the nation lacks in order to handle the surging oil boom. Existing refineries here in America were made to work with heavier grades of oil, not light crudes and their natural gas condensate counterparts. New refineries are coming online such as the Dakota Prairie Refinery in North Dakota, but these are still limited in the end products they can make due to federal environmental restrictions. The end product is still usually diesel or gasoline, but they do have an impact in local consumption.
Condensate splitters are far cheaper than other typical oil refineries. Companies are realizing this and jumping on board. According to the The Motley Fool, “Kinder Morgan is currently building a splitter near the Houston Ship Channel that will be able to process some 100,000 barrels per day of condensates under a long-term, fee-based supply contract with BP.” Yet building more of these to tip-toe around the law only makes sense if the ban stays in place. Otherwise, it’s cheaper to export product to bigger, more efficient refineries in Asia or the Middle East.
Where did the Ban start?
The conversation around oil and natural gas export bans stem from the 1975 Energy Policy and Conservation Act. This piece of legislation was passed as a response to the 1973 oil crisis that caused everything from gasoline shortages to a (fabricated) panic that toilet paper was facing a shortage. However, these were times when big oil producing nations (the U.S. included) were reaching peak productions of their known oil supplies, a fairly different scenario than living in a shale boom revolution. Western Countries were then at the mercy of unfriendly politics in the Middle East.
In addition, the world political field has changed. The oil embargo placed on the U.S. by the Organization of Arab Petroleum Exporting Countries (OAPEC) came about because of U.S. support to the Israeli military at the time. In the 21st century we have, at minimum, reasonable relationships with OPEC countries.
On the other hand, civil unrest, such as what is happening in Iraq has great power to cause fluctuation of global energy prices and, in turn, how much oil is brought into the United States. In 1979, the Iranian Revolution and the conflict to follow with Iraq in the following year brought the country’s oil production to a halt. In this example, it is reasonable to see why having some sort of restrictions on exporting the blood of modern society is necessary. Civil unrest has been a constant factor in many oil producing countries overseas, many of which can deliver a significant blow to oil prices.
Is it time?
Unless something seriously goes haywire with oil prices in the next couple of years, the pressure to address this export ban head on will not go away, especially when numbers are coming out that portray the huge economic benefit of exporting our homemade hydrocarbons. A recent Economic Impact report from the American Petroleum Institute claims that by 2035, natural gas producing states like Alaska, Louisiana, Pennsylvania, and Texas would tap into economic gains ranging from $10 billion to $31 billion. Texas alone could add over 155,000 jobs, and our overflow of natural gas could be a thing of the past. Whether the current administration makes real change on the ban or upholds the law as it stands is still up in the air. Nonetheless, just like any law that stands in the way of a buck, creativity to skirt around the ban knows no bounds.