The US’s Absurd Oil & Gas Export Laws

(Breaking Energy – November 20, 2013) The US’s Absurd Oil & Gas Export Laws (By: Conway Irwin)

United States law prohibits exports of crude oil and condensate except under certain conditions, while exports of refined products and natural gas are far less restricted. While these laws had little impact when the country was in a position of oil and gas scarcity, the country’s newfound energy abundance has rendered some of them obsolete, according to Rusty Braziel President of RBN Energy, at the Center for Strategic and International Studies last week.

“The rules that were established to be able to handle the exports of those hydrocarbons were all established back in the shortage days,” said Braziel. And in this new environment of abundance, some of these rules not only inhibit smooth functioning of markets, they are, in some cases, absurd. “In the olden days, these laws and rules didn’t make any difference. Now in a world of exports, they do.”

Exporting Natural Gas

“Methane molecules – essentially natural gas – can be exported based on destination. Canada’s ok, Mexico’s ok, and we can export methane in the form of LNG if it goes out of a terminal which has been approved,” Braziel said.

But while approvals for LNG exports to countries with which the US has a free trade agreement are almost a given, approvals for exports to non-FTA countries require a public interest determination. And the approval process – which has been both prolonged and highly politicized – has been the target of critics who say that “public interest” lacks a specific definition, raising questions about the transparency of the process.

“It looks to me like the rules about what gets approved are a secret,” Braziel said. “If it does get approved, then methane is good for exports.”

Exporting Propane and Butane

Natural gas liquids – which include propane and butane, as well as natural gasoline – are largely free of export restrictions. “Propane and butane molecules can be exported anywhere we want to take them, and that is regardless of the needs of the marketplace,” Braziel said. Propane and butane are known as liquefied petroleum gases in international trading, and can be produced as part of the crude oil refining process as well as from the natural gas stream.

Liquids-focused drilling in unconventional formations has led to dramatic increases in US propane and butane supplies, as well as a wide disparity between US and international prices. Exports have risen dramatically, and a rash of new export projects are in the works for the Gulf Coast. “This month we’ll export 450,000 barrels per day of propane off the Gulf Coast,” Braziel said.

But the US’s liberal LPG export regime may be exacerbating a temporary shortage in the country’s agricultural sector, which uses propane to dry corn after the growing season. “Over the course of the last two to three weeks, governors in seven midwestern states have declared propane emergencies,” Braziel said. A wet end to the growing season this year has led to strong, and unmet, demand for propane.

“This month we’ll export 450,000 bbl/d of propane off the Gulf Coast. It didn’t matter that there was a propane shortage in the midwest. There was not one single rule in place that prevented 450,000 bbl of propane exported off the Gulf Coast.”