Ticket To Export? BIS Condensate Clarifications May Not Help Export Demand

Last week’s clarification from the Bureau of Industry and Security (BIS) about the process required to export lease condensate may make exports easier on paper but it won’t stimulate export demand. The BIS move is timely because available exports of this light hydrocarbon material could increase significantly, depending on what happens to crude prices. However current low price levels and questions about future overseas demand could diminish the significance of the BIS process improvements. Today we describe the BIS clarifications and whether they are likely to make a difference.

Analysts were roused from the depths of their year end summary reports a week ago (December 30, 2014) by a couple of under-the-radar pronouncements from the BIS regarding crude oil export regulations. We have previously explained the arcane rules that restrict the export of U.S. produced crude oil and lease condensate as well as the way the BIS supervises them (see I Fought the Law and CCATS Scratch Fever). In a nutshell, under the regulations only certain limited types of crude may be exported with a license from the BIS. All other crude – including lease condensate – a lighter hydrocarbon liquid produced with gas liquids that has a higher API degrees gravity than crude, cannot be exported without a license from the BIS. Last year (2014), the BIS appeared to loosen the regulations for lease condensate by providing letters to Enterprise Product Partners and Pioneer Natural Resources, certifying their export of lease condensate that had been processed (see With or Without Splitting). After that development became public in July, the BIS received multiple similar applications from companies anxious to join the bandwagon but remained publically silent on exactly what “processing” of condensate would satisfy their requirements. Last week the BIS broke that silence. First they indicated that more companies would be issued letters approving their classification of processed condensate as a refined product that is not subject to export regulations. Second they published a list of FAQ’s and answers via a website posting – intended to shed light on the crude export rules and how to keep on the right side of them. The principal clarifications these FAQ’s provide are as follows:

  • Lease condensate processed through a distillation tower is considered a petroleum product, and can be exported without constraint and the same applies to crude oil.
  • In order for liquid hydrocarbons to be classified as a petroleum product, there must be material processing through a crude oil distillation tower and the BIS will consider 6 factors when reviewing the classification including API Gravity, the type of distillation tower used and the uses for the output products.
  • Most petroleum products may be exported to most of the world without a license.
  • Foreign crude (i.e. not produced in the U.S. may be exported provide it has only had a minimum amount of mixing with domestic crude due to incidental contact in pipelines and tanks. 

Despite the hoopla in some quarters, the pronouncements are not a policy change so much as a “shift” to open up more opportunities for producers to process their lease condensate for export by making the rules clearer. This shift should encourage more companies to export processed condensate by “self-certification” without waiting for BIS approval. Reading between the lines, there does not appear to have been any material change to BIS regulations and the clarification is only partial. For example, although the BIS list factors they will take into account to determine whether there has been enough processing to transform crude oil into a product, they do not give specific requirements such as API gravity or hydrocarbon content. In terms of making it “easy” to export processed lease condensate we also note that once processed, lease condensate still has to be segregated from unprocessed crude during its transit to an export dock – adding expense and logistics (see Enterprise Condensate Routes to Market). You can’t just ship this material to the nearest marine dock willy-nilly and export it.

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