Molecule Laws

Energy Information Administration (EIA) data for January 2014 indicates that US crude production has now returned to levels not seen since December 1988. Canadian crude production is also at record levels. The prospects look good for a combination of US production and Canadian imports to free the US from overseas imports by the early 2020’s. But along with this success comes a challenge balancing new streams of crude that are predominantly light with a lot of refinery capacity configured to process heavier crude. This balancing act is compounded by a ban on US crude exports. Today we review the contrast between crude and refined product export rules.

Today the US is producing more natural gas, natural gas liquids (NGLs) and some grades of crude oil hydrocarbons than we can use.  Consequently we’ve shifted from an overall position of hydrocarbon shortage to one of surplus. But only some of those surplus products can be exported. That’s because of rules put on the books during the decades of shortage that restrict or ban the export of hydrocarbons. At least six such “Molecule Laws” are now variously impacting international market transactions involving US produced hydrocarbons. Today we describe the export rules affecting NGLs.

Here at RBN, we have an often repeated view that the flood of oil and gas being produced from unconventional plays will change everything we once knew about energy markets (see Top Ten Energy Prognostications for 2014).  One such fundamental change is that the U.S. is now producing more natural gas, NGLs and some grades of crude oil than we can use (except for the past three weeks of Polar Vortex weather, of course).  Consequently the U.S. has shifted from a position of hydrocarbon shortage to one of surplus.  That is great news.  But just down the road there are potential problems developing – distortions in the markets.  Some of those surplus products can be exported, some can’t.  The rules regarding exports of these hydrocarbon products that we are living with today were all put on the books during the decades of shortage.  When you look closely at what those rules really say, you’ve got to scratch your head.  Today we begin a series to examine those rules.