Unrefined oil exports approved by U.S. on limited basis

The U.S. Commerce Department has quietly approved the first exports of unrefined American oil outside North American since the oil crisis of the 1970s, though the White House says it has not changed its rules banning exports.

The Commerce Department gave Pioneer Natural Resources Co. and Enterprise Products Partners permission to ship a type of ultralight oil known as condensate to foreign buyers. Condensate, a kind of light oil that comes from shale, can be refined into gasoline or other fuels.

For more than 40 years, the U.S. has had rules allowing the export of refined fuels such as gasoline and diesel, but not oil itself. The exception is exports to Canada, which are allowed as crude oil is shipped to eastern Canada for refining, often for the U.S. market.

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Lawmakers enacted the ban after Arab countries declared an embargo on shipments to Western nations after the Yom Kippur War, a move that led oil prices to quadruple and resulted in rationing at gas stations.

But the U.S. is now awash in light oil from shale formations, including the ultralight oil called condensate, which can be refined into gasoline or other fuels. From 2011 to 2013, U.S. oil output soared by 1.8 million barrels a day, with 96 per cent of new production in the form of light or ultralight oil, according to the Energy Information Administration.

The private rulings by the Commerce Department allow condensate to qualify as a refined product suitable for export so long as the liquid is stabilized and distilled, a process that boils off some of the most volatile gases.

Shipping in August

It’s believed the first shipments of condensate could come from the Eagle Ford Shale formation in south Texas as early as August.

Pioneer CEO Scott Sheffield had been an outspoken advocate for oil exports and had pressed his case with the U.S. government. His company issued a press release signalling the change on Wednesday.

On the other hand, it may be keen to export to Europe to reduce EU reliance on Russian gas and oil supplies and to Asia, which would happily take up any supplies of unrefined fuel.

Push to further open market

Further applications for exports from the U.S. may follow this approval, Morgan Stanley analysts Adam Longson wrote in a report Wednesday.

U.S. oil producers such as Continental Resources Inc. and ConocoPhillips have been lobbying for an end to the restrictions on exports so they can sell their shale oil.

If exporting of condensate becomes widespread, it could affect plans by several companies to build processing plants, that would  process lighter crudes from shale formations into products like naphtha, kerosene and gasoil, which are eligible for export.