U.S. oil export shift prompts second look at eligible shipments

6/25/2014

U.S. oil export shift prompts second look at eligible shipments

ZAIN SHAUK and DAN MURTAUGH

HOUSTON, Texas (Bloomberg) -- The U.S. could allow about 750,000 bpd of light crude oil to be exported, based on a new government stance defining what qualifies for overseas shipments.

Producers, refiners and pipeline companies are questioning exactly how much the Obama administration has relaxed its position on crude exports after the Commerce Department said June 24 it had categorized some lightly processed oil as exportable. The U.S. has prohibited most crude exports for four decades.

About 750,000 bpd of oil produced from U.S. shale plays is an ultra-light variety known as condensate, said Michael Wojciechowski, head of Americas downstream research for Wood Mackenzie. More than 70% of U.S. condensate comes from the Eagle Ford shale formation in Texas, where the majority of it goes through a heating process to burn off certain gases, Amrita Sen, chief oil economist for Energy Aspects, said.

The Commerce Department gave permission for condensates to be exported after going through the process, known as stabilizing, because then it can be considered a refined product. Though most raw crude oil exports are banned, refined products can be shipped abroad without limits.

Stabilizers at oil fields along the U.S. Gulf Coast may have a combined capacity of more than 200,000 bpd, according to Eric Lee, a commodities strategist for Citi Research.

“Processed condensate exports could begin as early as August,” Lee said in a research note. The U.S. could export 300,000 barrels of condensate per day by the end of the year, according to another Citi note.

Oil producers and refiners were unsure whether other types of crude might also qualify. Far more crude might be eligible for overseas shipments if any type of stabilized oil can qualify as a refined product, since the practice is widespread in the industry, said Charles Blanchard, an analyst for Bloomberg New Energy Finance.

Oil producer BHP Billiton said it welcomed the approval of condensate exports “under limited circumstances. BHP Billiton will consider marketing opportunities that may apply to our condensate production in the Eagle Ford and Permian basin,” Jaryl Strong, a BHP spokesman, said in an emailed statement.

As the industry figures out how to define the new rule, “that’ll really help companies on the downstream side better understand business opportunities and business impacts,” Dean Acosta, a spokesman for refiner Phillips 66, said.

Producers are keen to find additional markets for crude as output from U.S. shale formations has surged, causing bottlenecks in some regions. Refiners that have benefited from access to oil at prices below the international benchmark saw their shares drop yesterday, June 25, after the Commerce Department change was announced.

The United States produced almost 8.4 mmbpd in May and annual output is forecast to reach 9.3 mmbpd in 2015, the highest since 1972, according to the Energy Information Administration.

More than 80% of the Eagle Ford’s output goes through stabilizers, Energy Aspects’ Sen said. Pioneer Natural Resources, one of the companies that asked the government for permission to export stabilized condensate, said this week that a large portion of its 43,000 bpd of Eagle Ford production is condensate that already undergoes the processing.

Stabilizers are relatively simple pieces of oilfield equipment sometimes positioned near wellheads. They heat oil enough to boil off some gases, separating those products from the rest of the crude mix, Blanchard said. “A caveman could do it,” Blanchard said, comparing the process to heating oil in an oven.

The process is commonly performed before putting oil and condensate into pipelines. Stabilizing oil is far less complex than the process of splitting or refining crude, which involve more sophisticated devices that heat and separate fuels from oil. Stabilizers that qualify crude for export can cost as little as one-tenth that of more complex processing units, said Wojciechowski at Wood Mackenzie.

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