Will the Commerce Department’s Approval to Export Condensate Change the World?

The reporting in late June of the Commerce Department’s private rulings that authorized two companies to export condensate has ignited discussions regarding the real prospect of changes in U.S. oil export policy. Industry participants reportedly have viewed the Commerce Department rulings as “a major opening for the U.S. energy industry, and not simply a technical tweak to existing rules.” The Commerce Department stated that crude oil export policy remains unchanged, despite having classified condensate that had been processed through a distillation tower as a petroleum product that can be exported without a license in those private rulings.  Broadening the reach of the two private rulings to others in the industry and other forms of oil were reported to be hot topics at the U.S. Energy Information Administration’s Energy Conference held on July 14-15 in Washington, DC. One energy industry executive is quoted as declaring that “[w]hat we have now has changed the world.”

The Commerce Department’s rulings have prompted responses from Congress as well.  On July 2, Senators Edward J. Markey and Robert Menendez sent a letter to Secretary Pritzker inquiring about the Commerce Department rulings and stating that the “private rulings may have been issued in contravention of the longstanding ban on export on U.S. crude oil, which also prohibits the export of lease condensate.” The Senators requested copies of the private rulings and a written response to eight questions regarding the Commerce Department’s rulings and their potential impact on crude oil exports by July 14.

To the contrary, Senator Lisa Murkowski has supported the export of condensate, stating that “[c]ondensate exports are an easy first step on the road toward a broader lifting of the oil export ban.” On July 9, Senator Murkowski released a report titled Terms of Trade: Condensate as an Exportable Commodity, which advocates for the U.S. Commerce Department to treat condensate as a form of petroleum that is distinct from crude oil for purposes of export policy. The report points to those federal agencies responsible for oversight of offshore and onshore hydrocarbon production, which consider condensate to be distinct from crude oil and even categorize it as a “natural gas liquid.” The report notes that other natural gas liquids (e.g., propane, natural gasoline, etc.) may be exported and suggests that the Commerce Department “bring its regulatory structure into greater alignment” by “further authorizing exports of processed condensate and even updating its regulations to allow all condensate to be exported freely to global markets.” The report asserts that “[t]he Commerce Department’s decision to authorize exports of processed lease condensate as a petroleum product – just as unfinished oils are allowed for export today – is entirely consistent with federal regulations.”

The following week, after discussing the Commerce Department’s approach to crude oil and condensate exports with Secretary Pritzker, Senator Murkowski stated that she was “encouraged” and “Commerce’s recent action classifying processed condensate as a petroleum product under its existing regulations is a step in the right direction.” It was reported last week, however, that the Commerce Department has stopped the processing of some pending requests for permission to export condensate and has told companies that their requests are being “held without action.”

One headline last week read “Condensate Leaves U.S. Shores As Industry Demands Export Guidelines,” noting that “A tanker loaded with $40M of ultralight oil departed Texas for South Korea late [Wednesday] night, marking the first unrefined American oil export since the 1970s.” It remains to be seen how many others will follow and how soon.