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 The Department of Commerce has granted two licenses to export crude
to the UK since last year and another two to Italy, according to
data Reuters obtained through a Freedom of Information Act request.
One application for German exports was filed in January and is
awaiting a decision by the Bureau of Industry and Security (BIS),
which is responsible for reviewing requests to export crude under a
1975 law that bans most shipments with a few exceptions, including
sales to Canada and re-exports.
On Tuesday, after Reuters reported on the existence of the permits,
a BIS official said they only covered re-export of foreign oil and
not domestically produced crude oil. He did not say where the oil
would come from.
The bureau earlier had not responded to repeated requests for
comment on whether the licenses were for the re-export of foreign
crude or swap deals for oil that had been produced in the United
States; both provisions are allowed within current export
regulations.
These are the first permits for shipments to the UK since at least
2000 and the first to any European country since 2008, according to
data from the BIS. The bureau has approved 120 licenses since
January 2013, nearly 90 percent of which were for sales to Canada,
the data show.
While the permits do not show that U.S. producers are moving more of
their oil overseas, the licenses could add to the growing debate in
Washington on the benefits and pitfalls of lifting the ban, among
the year's most urgent policy questions as the relentless rise in
shale oil production threatens to saturate domestic refiners as soon
as this year.
They may add to expectations that the Obama administration will
allow companies to use provisions in the existing regulation to
slowly increase exports, while stalling on a decision on whether to
scrap the ban.
Canadian oil sands producers have begun exploring ways to increase
exports of their deeply discounted crude, most of which is now bound
for the United States. Such re-exports would be controversial among
environmentalists who are seeking to stem the growth in
energy-intensive oil sands output.
They could also fuel critics of Canada's oil patch and the Keystone
XL pipeline, which some fear may allow for the United States to be a
conduit for growing oil sands production. TransCanada has denied
that its long-stalled pipeline would be used to export Canadian
crude.
RELIC
With U.S. oil production at a 25-year high, many oil producers are
eyeing other markets and have called for an end to the ban on
exports, which they consider a relic of the 1970s, when the Arab oil
embargo led to steep prices at the pump.
Alaskan Republican Lisa Murkowski, the Senate Energy and Natural
Resource Committee's top Republican, has backed that position.
On the other side, independent U.S. refiners, which stand to benefit
from cheaper domestic crude, have argued against easing
restrictions.
Senator Ron Wyden, chairman of the Energy and Natural Resources
Committee and a Democrat of Oregon, warned at a hearing last week
that "a number of influential voices" that want to export oil could
drown out the risks for the average consumer.
If more exports to Europe are allowed, refiners across the Atlantic
may have cause to celebrate since access to cheap, high-quality U.S.
shale oil would help revive their margins.
The BIS declined to comment on the identity of the exporting
companies, citing exceptions in the Export Administration Act.
The bureau's data does not show which permits were used, and the
Department of Energy's oil export data does not show any crude
shipments to Europe through November 2013.
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EUROPEAN EXPORTS A RARITY
Exports of crude to Canada were initially approved by President
Ronald Reagan in the 1980s, and have picked up rapidly in recent
years. The United States sent about 200,000 barrels of oil a day to
Canada in November, the highest volume since 1999, data from the
Department of Energy shows.
A handful of licenses have also been regularly approved over the
past decade for countries in central America or Asia, either for the
export of heavy California crude or the re-export of foreign-origin
oil, according to a BIS statement released last year.
But European countries have rarely appeared on the list. Two permit
applications filed in 2011 for exports to Switzerland and one for
exports to the Netherlands were not approved.
The two approved UK permits were for shipments with a total maximum
value of $1.8 billion, while those to Italy were valued at $3.12
billion. The application for German exports was worth $2.6 billion,
the data show.
PRESSURE FOR SWAPS
The licenses for re-exports may add to pressure among North American
producers to allow for oil volume swaps, by which companies can
export in return for a higher quality or volume of crude or refined
fuel.
"The implication is that we are not exchanging a higher value item
for a lower value," said Ed Morse, global head of commodity research
at Citi, while noting that re-exports of Canadian heavy oil from
U.S. shores are on the rise.
Applicants for such licenses have to demonstrate that the trade is
part of an overall transaction in the nation's interest and the oil
cannot be sold for a reasonable price in the United States.
Sellers also have to prove that exports will be terminated if U.S.
supplies are seriously threatened.
Theodore Kassinger, a partner with the law firm O'Melveny and Myers
in Washington who previously served as the deputy secretary and
general counsel of the Department of Commerce, said it is difficult
for sellers to prove that they cannot sell the oil at a profit
within the United States.
"But the time will not be very far when it will not be commercially
viable to market the crude in the country," he said.
Without established trade routes or tanker rates, it is difficult to
compare the economics of exporting Canadian heavy oil sands versus
shipments of U.S. light-sweet oil to Europe. Few traders have
examined the value of such unprecedented shipments.
While Canadian crude trades at deep discounts to the U.S. benchmark
futures contract, most European refiners are not configured to
process the heavy oil.
Ultra light, low-sulfur Bakken, on the other hand, would be welcome
in Europe, but trades at relatively higher prices in the United
States where local refiners are still eager to replace imported
crude with the domestic grade.
(Reporting by Selam Gebrekidan; editing
by Jonathan Leff and Leslie Adler)
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