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 As U.S. production of light crude oil continues to boom, some
companies and lawmakers are calling for the United States to reform
its decades-old ban on most U.S. crude oil exports - a policy that
followed the Arab oil embargo of the 1970s.
A breakthrough arguably came this week, when U.S. officials
clarified that a type of ultra-light crude known as condensate could
be exported after enough processing to qualify as a refined product,
exports of which are allowed. Swaps would be another way to test the
ban's limits.
In theory it should take just weeks for Washington to allow oil
producers to execute a deal, since these swaps are allowed by law.
But analysts say meeting the base requirement - that the imports be
of the same quantity and quality as the exports - is easier said
than done.
The current law does not clearly define quality - for example,
whether a heavier crude such as the kind Mexico produces is of
higher quality because it is compatible with U.S. refining capacity,
or lower quality because of its density.
"Ensuring that crude swapped in is of the same quantity and quality
as crude swapped out, which is a loose paraphrase of one of the
regulation’s many stipulations, may be non-trivial," said Kevin
Book, policy analyst at ClearView Energy Partners.
The Commerce Department's Bureau of Industry and Security, which
oversees exports, has received at least one application for a permit
to export crude through a swap deal, Reuters has reported.
Earlier this month, Continental Resources confirmed it has applied
for a license for a swap "to further demonstrate the need for a free
market for crude." The largest leaseholder in the booming North
Dakota Bakken region did not disclose with which country it intends
to swap.
Current law says U.S. oil can be exchanged in similar quantity "with
persons or the government of an adjacent foreign state" or
temporarily exported across parts of an adjacent country, and then
reentered into the United States.
Adjacent countries could include Mexico and Panama, according to a
BIS official.
U.S. regulations allow a swap of oil exports for imports only if the
home-grown product cannot be marketed domestically for “compelling”
economic reasons.
Analysts said that if a company makes a strong enough case about the
negative economic impacts of excess crude oil production within the
United States, approval could be relatively fast.
“If someone put in the right application that said ‘I’ve got a
distressed crude oil, it’s a widget that no one needs and its
backing up on production’…I would bet they would get an export
license,” said Frank Verrastro, chair for energy and geopolitics at
the Center for Strategic and International Studies.
Export backers said dislocations in supply will increase in the
coming months and years as production from the Bakken and other
plays, ill-suited to current refining needs, continues to rise.
North Dakota this month passed the one-million-barrel a day mark in
crude production, the state's petroleum council said on June 17. In
2000, the state produced less than 100,000 barrels of oil per day.
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SWEET AND SOUR
U.S. Senator Lisa Murkowski of Alaska, the top Republican on the
Senate Energy Committee, has pushed for ending the export ban,
citing a range of benefits that would flow to the United States.
Last month Murkowski issued a staff report saying swaps of light
sweet crude to nearby countries would be one way to shrink a glut of
that type of oil within U.S. borders.
"Exchanges cannot solve the mismatch between refineries geared to
process heavy crudes and record production of lighter grades of
petroleum, but they would be a partial measure," the report said.
U.S. Energy Information Administration chief Adam Sieminski has said
that the domestic excess of light sweet oil and Mexico's excess of
heavy sour oil offered an opportunity.
Sieminski said in May that the EIA has no immediate plans to study
the option, but that companies and refining consultants should
explore whether it makes economic sense.
"Mexico, I thought, was an easy one because they are right next
door, but other countries in Latin America may also be suitable
candidates – Venezuela would be one," Sieminski said.
Still, not all experts see swaps as a simple way to get around the
export ban.
ClearView's Book said that for various reasons there is probably
only a narrow range of price spreads between U.S. and Mexican crude
that could make a swap worth doing.
And Amrita Sen, chief oil market analyst at Energy Aspects, said it
is "cumbersome" to prove that the U.S. economy will be better off
with swaps and that producers would not be able to sell the light
crude domestically.
Physical limitations could also make it difficult for U.S. companies
to justify swaps with some of the most likely prospects, including
Mexico and South Korea, she said.
(Reporting by Valerie Volcovici; additional reporting by David Alire
Garcia in Mexico City and Edward McAllister in New York; editing by
Ros Krasny, Jonathan Leff and Cynthia Osterman)
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