Administration Eases Oil-Export Ban

Two companies may begin shipping and selling a product known as 'condensate' overseas, potentially paving the way to further exports.

A drilling rig rises above Kennedy, Texas, in May 2012. Certain condensate distilled from oil mined in the Eagle Ford Shale in South Texas may be sold overseas, the Commerce Department recently ruled.

A drilling rig rises above Kennedy, Texas, in May 2012. Certain condensate distilled from oil mined in the Eagle Ford Shale in South Texas may be sold overseas, the Commerce Department recently ruled.

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Make way. 

The Obama administration has eased a decades-old ban on oil exports, potentially clearing the way for energy companies to ultimately sell U.S. oil overseas. 

Two companies, Pioneer Natural Resources Co. and Enterprise Products Partners LP, were given the green light by the Commerce Department to export “condensate,” a distilled form of ultralight oil that can be further refined into gasoline, diesel and jet fuel. 

The shipments may begin as soon as August, according to The Wall Street Journal, which first reported the story Tuesday night.

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American oil producers have long sought to lift the American export ban, which was implemented in the wake of the Arab oil embargo of the 1970s – itself retaliation for America’s support of Israel in the Yom Kippur War. Lawmakers hoped that by keeping American oil within the country’s borders, the U.S. would be insulated from volatile global energy markets. 

Whether the strategy worked is unclear: oil imports fell for a few years into the early 1980s, but then rose again during the next 20 years. 

As domestic production has boomed since the start of the 21st century, oil producers have redoubled their efforts to lift the export ban. Refineries, chemical companies, consumer groups and others, however, have fought it, arguing that exporting oil will raise prices at home (environmental advocates also contend that it would encourage further drilling at home, which they oppose). 

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Already, prices rose to a nine-month high last week in the wake of both turmoil in Iraq and the start of the annual summer driving season. Yet any effect from the Commerce Department’s ruling – which only applied to the two oil companies and their particular form of condensate – will likely be “slight,” says Paul Sullivan, a professor of economics at National Defense University and an adjunct at Georgetown University. 

“In the big scheme of exports and imports these condensates from these two companies will be tiny,” he writes in an email to U.S. News. “This will be important for these companies' bottom lines, but will have minimal effects on the average American family's wallet."

Moreover, it remains far from certain whether the Commerce Department’s decision signals any movement toward a broader lifting of the crude-oil export ban.

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In many ways, the ruling was more a clarification than any sort of broad mandate, legal experts say. Earlier this year, Pioneer and Enterprise applied to the Commerce Department to determine whether the condensate – distilled from crude oil they were mining in South Texas – counted as a form of crude.

If it did, it would be subject to the ban and need a special license to be exported. If it didn’t, it would be considered a distilled or refined product, and therefore could be shipped and sold overseas without a license.

The Commerce Department decided the latter. 

“They were clever enough to ask in the right way,” Sullivan says of Pioneer and Enterprise. "This ruling can open up a real Pandora's box of legal actions to push the limits of the definitions of crude, distillation, condensates and more. This is really a small chipping away at the law from the 1970s."

Nevertheless, he adds, "it still does not open up the gates to export crude as defined in the law."

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Commerce did not immediately return a request for comment Wednesday morning. The American Petroleum Institute, though, welcomed the agency’s decision.

“Allowing the export of processed condensate would be a very small step toward a much more important goal, which is free trade,” said Zach Cikanek, an API spokesman, in a statement. “America is producing 50 percent more oil than it did in 2008, nearly all of which is light, sweet crude and not well-matched for U.S. refining capacity. Lifting export restrictions on unrefined crude would strengthen job growth, promote domestic energy production, and put downward pressure on energy prices.”