Nation/World

Obama administration issues guidance on oil exports

WASHINGTON — The Obama administration on Tuesday issued long-awaited guidance clarifying what kinds of crude can be exported, a move seen as widening the opening for lightly processed U.S. oil to be shipped overseas.

The "frequently asked questions" document from the Commerce Department's Bureau of Industry and Security broadly confirms that oil can be exported once it is processed in distillation towers, a welcome move for energy producers struggling as crude prices plummet.

But raw, unprocessed oil, including ultralight condensate, still falls within the scope of a 39-year-old ban on exporting crude, the bureau said. And the agency insisted that companies must do more than simply pass oil through heater treaters or separators that pull off the lightest components before they can export it.

"Crude oil processed through such equipment remains classified as crude oil," the bureau said in its guidance document. However, "liquid hydrocarbons processed through a crude oil distillation tower are classified as petroleum products."

That is the same bright line that the bureau drew earlier this year when it told two Texas companies they could export condensate once it is run through distillation towers that use heat to separate oil into different components. And it is the benchmark that other companies have been using as they move to ship processed condensate overseas — even without the bureau's explicit authorization. In November, BHP Billiton said it would self-classify its processed condensate as an exportable petroleum product and other companies are believed to have followed suit.

Several would-be exporters have asked the bureau for an official classification ruling that would deem their processed oil an exportable petroleum product — on the same footing as gasoline, diesel and jet fuel, which can be freely sold overseas.

In a statement, Eric Hirschhorn, the U.S. undersecretary of commerce for industry and security, confirmed that the bureau was issuing commodity classifications for some applicants. The bureau declined to identify the recipients, specify how many were issued or provide further details on the scope of those private rulings.

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Some analysts said the FAQ's focus on liquid hydrocarbons — not just on condensate— could widen the opening for exports of all lightly distilled crude.

"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 Kevin Book, an analyst with ClearView Energy Partners here. "What BIS 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."

The bureau's determination that distillation towers are essential for oil to be transformed into an exportable petroleum product may initially give an edge to companies working in the Eagle Ford shale in Texas — where that equipment already exists — over other productive fields, such as the Bakken formation in North Dakota.

Jamie Webster, an oil markets analyst with the research firm IHS, said the guidance document should be viewed as "the initial steps of heading toward more open, liberalized crude exports."

"This is no new real clear policy, there's not a whole lot new there (and) what it does is kind of better describe what many people had already suspected," Webster said. But "it indicates some progress in thinking and in terms of actually putting stuff to paper from the White House that essentially will allow the Commerce Department to actually start analyzing more of the requests they have had for more interesting sorts of things."

For instance, energy companies could file classification requests for varying compositions of crude or even different distillation technology.

All of them would be examined using at least six factors outlined by the bureau on Tuesday, including whether the distillation process described by applicants "materially transforms the crude oil...into liquids streams that are chemically distinct from the crude oil input."

U.S. oil prices spiked briefly on the news Tuesday afternoon. If greater volumes of processed U.S. condensate and other distilled oil hit the world market, that could further narrow the difference between the U.S. benchmark crude, West Texas Intermediate, and its international counterpart, Brent.

Oil producers have been lobbying the Obama administration and Congress for more freedom to export beyond existing exemptions for shipments to Canada and some Canadian and Alaskan crude. But some lawmakers who back the oil industry have been reluctant to embrace the issue, wary of being blamed by voters for any subsequent jump in gasoline prices, even if it is not tied to a change in policy.

Some refiners that benefit from the discount in U.S. oil say changes would be unwise. They insist there is enough refining capacity to process light domestic crude and that broadened exports could undermine the sector.

Jay Hauck, executive director of Consumers and Refiners United for Domestic Energy, called the holiday timing of the Commerce Department's release "a classic D.C. maneuver." Hauck said the group is still analyzing the document.

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