Brent/WTI spread narrows

Energy Market Analysis

The crude oil complex took a breather from the evolving situation in Iraq to react to a bit of a “shot over the bow” regarding exports of oil. The U.S. Commerce Department granted Pioneer Natural Resources Co.’s request to classify stabilized condensates as petroleum products eligible for export, the company said. In addition they granted Enterprise Products Partners LP permission to export condensate. The exports are expected to be small and start as early as August. The Commerce Department's Bureau of Industry and Security approved the moves using a process known as a private ruling.



For the moment the ruling applies to the aforementioned two companies to export processed condensate from the Texas Eagle Ford Shale formation according to the Wall Street Journal. The Commerce Department also stated that there has been no change in policy on crude oil exports. The private rulings by the Commerce Department define some ultralight oil as fuel after it has been minimally processed, making the oil eligible for sale outside the U.S. The Brookings Institution estimates that as much as 700,000 barrels of ultralight oil per day could be exported starting next year (WSJ).

Under the ruling condensate can qualify for export (as a refined product) if the condensate is stabilized and distilled. Stabilization boils off some of the most volatile light ends. This ruling could have a negative impact on the current industry movement toward adding condensate splitters to the mix. According to Credit Suisse about 20 projects with a capacity of 900,000 bpd are in various stages.

Condensate splitters by contrast are stand-alone basic distillation units--operated outside of a refinery. The splitter converts the condensate into liquid petroleum gas, naphtha, jet, diesel and gasoil, a refinery feedstock, thus into “refined” products by Commerce Department definition and, thus, it can be exported. If the current ruling expands to more companies and more areas it could start to have an impact on all of the planned condensate splitters as more exports of condensates under the ruling would start to impact the price of filed condensates and thus the economic benefit of a splitter.

For the moment the impact is hardly underway and there will be many questions and interpretations to the Commerce Department’s ruling. In fact it does not yet appear on the Commerce Department website. In the very short term it does not have a material impact on the supply and demand balances in the United States. Certainly the impact will evolve over the medium to longer term.

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