13 Nov 2015 | 17:30 UTC — Insight Blog

Is a ‘black box’ agency hindering the outlook on US crude, condensate exports?

author's image

Featuring Brian Scheid


When the Obama administration gave legal backing to exports of processed condensate exports last year, it fueled speculation that a more significant shift in US crude export policy was looming and that US producers may have found a new global export market to conquer.

Much of that speculation has, thus far, fallen flat.

The administration has signaled that it will not move to liberalize long-standing restrictions on crude exports nor will it back efforts by Congress to repeal these roughly 40-year-old limits, despite a fierce lobbying push to do so.

At the same time, infrastructure constraints, tight spreads and even contractual obligations from producers may have slowed the growth of the US processed condensate market, which may have peaked at an estimated 160,000 b/d in June and fell to as low as 30,000 b/d in September.

According to Stuart Nance, a vice president of marketing with Reliance, a Houston-based E&P company, that decline has been fueled by low crude oil prices, which have pushed Eagle Ford condensate production down by about 200,000 b/d, and a tightening of the WTI-Brent and LLS-Brent spread to about $3/b. At the same time, the construction of three new Gulf Coast splitters has boosted domestic demand for condensate, Nance said.

In short, the relatively underwhelming launch of the US processed condensate export market has not matched the initial hype.

Blog post continues below...


Request a free trial of: Oilgram News OilgramNews
Oilgram News Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.
Request a trial to Oilgram News (opens in a new tab)

And while the state of the condensate export market can be primarily pinned on market fundamentals, the lack of clarity and relative secrecy from the agency charged with US crude and condensate exports may also bear some of the blame as industry expectations are reset.

That agency, the US Department of Commerce’s Bureau of Industry and Security, is often described by analysts and attorneys as a “black box” due to its national security considerations in export control.

BIS, which is charged with issuing crude export licenses, rarely publicly discusses its process for approving such applications and never comments on specific crude or condensate export applications it may be considering or even the details of applications it may have approved.

This regulatory secrecy can create a real lack of clarity and even confusion when it comes to determining if a policy shift may be in the works or if US producers are even formally pressing for more access to the world market.

For example, in August, a Commerce official said in a carefully worded statement that the agency planned to issue licenses for the exchange of heavier Mexican crude for lighter US oil, while at the same time denying swaps to Asian and European countries.

But last month, Senator Lisa Murkowski, an Alaska Republican and chairwoman of the Senate Energy and Natural Resources Committee, wrote in a letter to Commerce that there was "conflicting information" about these exchanges and said it remains unclear if any swaps with Mexico had been approved by Commerce.

About a week later, Mexico’s Pemex said in a statement that Commerce had granted it a license to import 75,000 b/d of light crude for a year beginning in October in exchange for heavy Mexican crude, which US refineries are better able to process. Commerce declined to comment.

The lack of transparency around that swap, which is allowed by US statute, signifies the extreme challenge in determining how federal policy may be driving the US crude and condensate export market and the obstacles posed in determining where these markets may be going.

In September, the Center for Biological Diversity and ForestEthics filed a lawsuit in the US District Court in San Francisco claiming that the administration withheld permits, environmental studies and other documents related to its export decisions. Those environmental groups have since withdrawn the lawsuit.

The lawsuit followed a similar, still ongoing lawsuit filed by environmental legal group Earthjustice in June which claimed BIS was illegally suppressing documents and communications related to its processed condensate decisions.

Denying the release of these documents violates the Freedom of Information Act, the environmental groups claim in their lawsuits.

In a rare public appearance by a BIS official, Matthew Borman, deputy assistant secretary of commerce for export administration with the BIS, told an Argus conference in late October that his agency had no plans to broaden the parameters for processed condensate exports, dashing some hopes that the administration could allow exports of a certain API gravity or allow the export of some comingled condensate.

"We don't want people to be able to get around the statute," Borman said.

And while Borman also indicated that his agency was far more active in terms of crude export considerations than many initially believed, he gave no indication officials were working towards any policy change.

While declining to give specific details, Borman said that several US companies have sought permission from the Obama administration to export crude oil to European, Asian, African and Latin American countries, but have been rejected because they have failed to qualify for strict exemptions to US crude export restrictions.

These companies, many of whom sought exchanges with countries similar to the Pemex swap, were not allowed to export US crude to several other countries because they could not prove the oil could not be marketed in the US, Borman said.

"You really have to show that the crude oil you want to be exported can't be refined in the United States," Borman said. "So it's a really high standard."

"So far we have not seen any application which has made that bar," he said.

Borman said that in fiscal 2015 BIS approved 181 licenses for exports of crude oil valued at $357.3 billion, almost all to Canada. That is a decrease from fiscal 2014, when 189 applications were approved, Borman said.


Register for free to continue reading

Gain access to exclusive research, events and more

Already have an account?Log in here