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 Although it would require an act of Congress to end the
four-decade export ban, some analysts and executives believe the
White House may be getting ready to open up the taps a bit, allowing
some export of a super-light form of oil known as condensate, which
falls into a regulatory gray area.
Executives and sources said a number of major shale oil producers
have quietly stepped up lobbying efforts over the contentious energy
issue in recent weeks, meeting with officials from the Commerce
Department's Bureau of Industry and Security (BIS), which oversees
exports.
Analysts also pointed to comments by several senior administration
officials this month about a possible overabundance of certain types
of crude, particularly the variety produced in the Eagle Ford shale,
which is rich in condensate. Some refiners have said an excess of
lighter oil is already forcing them to slow operations, an early
sign of a growing glut.
Starting with condensate rather than crude could allow President
Barack Obama to test the waters by addressing a product for which
there is limited domestic demand.
Pioneer Natural Resources, a leading shale oil producer, held its
first meeting recently with Commerce officials. They were
"interested in understanding more about our opportunities and growth
projections", said Mark Berg, the company's executive vice president
and general counsel.
"We are optimistic based on the communication we have had with the
administration that positive steps will be taken on condensates and
we are encouraged by that," he told Reuters.
A BIS spokesman did not reply to requests for comment on the nature
or frequency of recent meetings.
Many analysts believe any action is likely to be low-key and
incremental. The BIS could grant individual export permits quietly,
for example, or approve limited swaps of crude for other varieties
with other countries like Mexico. Some doubt there will be any
action at all until after the mid-term elections.
Any easing of the ban could provoke a backlash. Some critics say
booming U.S. shale oil production should remain at home to temper
gasoline prices. Environmentalists seeking to stymie more oil
drilling are also lining up to oppose overseas shipments.
But market pressures to export are building as the shale energy boom
floods the country with excess light, sweet crude.
A number of other oil companies have also recently met with trade
officials to talk about condensate exports, according to Robert
Dillon, a spokesman for Alaska Senator Lisa Murkowski, a champion of
U.S. crude exports.
Last month, Murkowski presented a paper that said existing rules
could be easily amended to allow for condensate sales abroad. On
Thursday she urged allowing for oil swaps.
"It won't solve the oversupply issue but it is a good first step,"
Dillon said.
OIL REDEFINED?
Pioneer, one of the leading producers in both the Eagle Ford and the
Permian Basin in Texas, is among the companies that says it must
sell oil at below-market rates because of the ban on exporting
domestic crude.
Imposed after the Arab oil embargo of the 1970s, the measure bans
exports of condensate that is produced from an oil field. But
condensate from a natural gas processing plant can be exported
because under the law it is considered a refined fuel.
Changing the way condensate is defined could be one way to open up
the taps, although it may not be simple.
Excluding so-called "lease" condensate from the restrictions would
"involve multiple code changes, including to tax codes and Iran
sanctions legislation," Eurasia Group analyst Greg Priddy said in a
research note last week.
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At Columbia University this month, Obama adviser John Podesta said
the administration was "taking an active look at what the production
looks like, particularly in Eagle Ford, in Texas", and whether
refiners can absorb that type of oil. While condensates can be
blended into the crude supply or used by Gulf Coast refiners, most
of them are configured to run heavy oil and so have limited demand
for it.
In late April, Valero Energy Corp, the largest U.S. independent
refiner, said it had reduced operations at two refineries that were
unable to process inland U.S. crude that was becoming increasingly
"light".
Last week, Energy Secretary Ernest Moniz said in Seoul that the
issue was "under consideration" but said primary responsibility
rested with the commerce department.
Rusty Braziel, president of Texas-based RBN Energy, said he expects
any development in the coming weeks will be "a small-step trial
balloon" to test the political reception to the rule as well as the
impact on prices.
In recent few months, Braziel said he has gotten several queries
from a number of different administration officials and
congressional staff asking for more clarity about condensates.
"Just the fact they are asking the question made me think there is
more going on here than just a few people chattering," he said.
MAYBE LATER?
Some observers doubt there will be any movement on oil exports
before mid-term elections in November.
Obama, seeking to avoid angering allies in the environmental
movement, may try to defer any action until domestic oil prices drop
so low that producers are forced to begin shutting in production,
they say.
Others dismiss the latest rush of enthusiasm as misguided.
"We had heard a lot of rumors around that in the past four to six
weeks. It has died down," says Warren Henry from Continental
Resources, a leading producer of crude from North Dakota's Bakken
region, which has little condensate.
"There were some people pushing for some incremental changes
starting with just allowing condensates to be exported. We don't
think it is the right solution."
Pioneer's Berg said that while he would welcome the incremental
steps, he said the company is keeping its eye on the main prize: a
comprehensive overhaul of the export ban.
But some believe political considerations may prompt Obama to move
sooner. The theory is that allowing for a small opening might aid
fundraising efforts for vulnerable Democrats like Mary Landrieu of
Louisiana, a big oil state.
"Political factors may move to a decision where economic factors
will not," said Al Troner of Houston-based Asia Pacific Energy
Consulting.
(Reporting by Valerie Volcovici, editing by Jonathan Leff and David
Gregorio)
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