PNR head urges DOC to issue condensate export permits to others

Oct. 27, 2014
The head of an independent oil and gas company that in late June received one of the first two federal approvals to export condensate urged the US Department of Commerce to begin issuing similar permits to other applicants.

The head of an independent oil and gas company that in late June received one of the first two federal approvals to export condensate urged the US Department of Commerce to begin issuing similar permits to other applicants.

"There are people right next door to us who are running the exact same condensate through the exact same units, and their export applications aren't being approved," said Pioneer Natural Resources Co. (PNR) Chief Executive Officer Scott D. Sheffield.

Speaking during a discussion of increased US crude exports' potential benefits for manufacturers at the Aspen Institute in Washington, DC, Sheffield said, "A lot of questions are being asked now. There will be more after next month's elections." Between one third and one half of the Eagle Ford shale's nearly 1.5 million b/d of liquids production is condensate, according to Texas Railroad Commission figures.

DOC's Bureau of Industry and Security's ruled on June 24 that PNR and Enterprise Product Partners' upgraded condensates qualified as products and were not covered by existing US crude oil export restrictions (OGJ Online, June 25, 2014).

A second panelist, Pentair PLC Chief Executive Randall J. Hogan, said he hoped DOC would come out with a blanket definition of condensate and allow others to initiate exports. "That could push the [crude export decision] problem back 1½-2 years," he said. "I also think crude oil swaps with countries like Mexico should be allowed."

Their remarks came at an event marking the release of a new report, "Lifting the Crude Oil Export Ban: The Impact on US Manufacturing," which was sponsored by the Aspen Institute's program on Manufacturing and Society in the 21st Century and the MAPI Foundation, the Manufacturers Alliance for Productivity and Innovation's research affiliate.

Further benefits

The report concluded that US manufacturing, which has benefited significantly already from the US oil and gas renaissance brought about by hydraulic fracturing and horizontal drilling, would realize even more benefits if existing US crude export restrictions were lifted.

"Higher levels of oil production require higher investment expenditures for capital equipment and construction, which in turn boost overall demand for goods," said Thomas J. Dustenberg, executive director of the Aspen Institute program and a co-author of the report. "This stimulates the manufacturing sector and its supply and distribution chains. The resulting improvement in income and employment would boost the economy significantly."

Donald A. Norman, the MAPI Foundation's economic studies director who also helped write the report, said US crude production in June was enough to offset unplanned global supply disruptions. But it sells at a deep discount because US refineries configured to process heavier grades process lighter crudes much less efficiently, he noted.

"The technology to extract oil from shale formations keeps improving," Norman said. "Lifting the oil export ban would, by itself, lead to a manufacturing renaissance and produce significant economic benefits."

Another panelist-C. Boyden Gray, a former US Ambassador to the European Union and former special envoy for Eurasian energy-noted, "It's an incredible anomaly that [the US] allows exports of nearly everything but crude oil. It should be changed. The president could do this tomorrow."

US refineries configured to run lighter crudes are buying their inputs cheap and selling the resulting products globally, Gray said. "But if we artificially depressed the [US crude] price by cutting off markets, drilling could start to slow down and rigs would move elsewhere," he warned.

Exports necessary

Most producers are in the midst of preparing their 2015 capital budgets, Sheffield noted. "It's harder to shut down unconventional production than it is to shut down conventional drilling," he said. "Our wells are economical at $70/bbl and some at $60/bbl. We're having a record boom in the Permian basin with 500 rigs. It could drop down to 300, but it would still be healthy."

Still, said Sheffield, "if it wasn't for our ability to export ethane, propane, and other products, prices for our light sweet crude would totally collapse."

Asked why Congress and the Obama administration have not moved quickly to remove US crude export restrictions, Hogan replied, "It's inertia and fear. Why should the government regulate margins for refining? It doesn't regulate margins for [athletic shoe manufacturer] Nike, which are higher."

Jeffrey F. Werling, executive director of the University of Maryland's Inforum, which did the report's econometric modeling, said the initial effect of lifting the crude oil export ban would be much higher oil and gas industry capital outlays because companies would need more pipe, valves, and other supplies. Oil product exports would decline, but not disappear, he added.

As US oil and gas spending leveled out, it would be replaced with an economy producing more crude, Werling said. "Real wages would increase because there would be more high-paying jobs," he said. "The macro-effects are pretty positive, with permanent net benefits for manufacturing."

Hogan said, "Projects aren't going as fast as they could because there's so much uncertainty. But they're also not being canceled. If you want to know more about the American dream, go out there and talk to the people who are living it."