What the New Guidance on Oil Exports May Mean

Oil is one of the most lucrative industries in the world. A company like Exxon Mobil, for example, had a market capitalization of $417 billion back in 2013. So naturally, it’s also a highly regulated industry. Even above-ground storage tanks used to house oil are subject to both federal regulations and state/local regulations.

However, the restrictions are getting a bit looser. At the end of December, the U.S. Department of Commerce finally released a much anticipated explanation of what crude oils are allowed to be exported under the country’s 39-year ban on exports of most domestic crude oils.

“This may not technically qualify as a policy change, but it does bring existing policy more in line with the current state of industry and technology,” said ClearView Energy Partners analyst Kevin Book. “What [the Commerce Department’s Bureau of Industry and Security] has done seems to have gone beyond processed condensate, although it isn’t clear how much beyond. The agency appears to be inviting operators to explore the boundaries of what qualifies for export.”

According to the Commerce Department’s Bureau of Industry and Security’s “frequently asked questions” document available online, oil can be exported once distillation towers have processed it, but raw, unprocessed oil still falls in the reach of the 39-year-old ban on exporting crude.

Though the newly updated regulations are greatly welcomed by energy producers struggling with the falling price of crude, the agency has not given let energy producers have free reign, and insists that companies must do more than just pass their oil through heater treaters or separators that pull off the lightest components before they ship it out.

“Crude oil processed through such equipment remains classified as crude oil,” said bureau. However, “liquid hydrocarbons processed through a crude oil distillation tower are classified as petroleum products.”

What’s specifically new about this change is its official status. In 2014, the bureau told two companies from Texas that they could export condensate once they’d run it through distillation towers that use heat to separate oil into different components, which is what other companies have since been doing ever since as they move oil overseas.

The most important thing about this new rule change, though, isn’t what it’s necessarily allowed, but what it might mean in the grand scheme of things.

According to IHS oil markets analyst Jamie Webster, the updated guidance document should be viewed as “the initial steps of heading toward more open, liberalized crude exports.”

Leave a Reply

Your email address will not be published. Required fields are marked *