Lifting the Ban on Crude Oil Exports Troubling in Light of Recent Rail Catastrophes

What do fracking, recent rail car explosions, and international trade have in common? A volatile light crude oil called “condensate.”

Condensate is typically defined as natural gas trapped underground that liquefies as it comes to the surface and is classified as an ultralight, gassy crude oil. The distinction between traditional crude oil and condensate has only become relevant in recent years due to hydraulic fracturing (“fracking”), which has resulted in higher yields of condensate than traditional extraction methods.

With the growing stock of condensate and projections that the U.S. will become the world’s top oil producer by 2015, many companies are looking to export this new substance overseas. But under the Energy Policy and Conservation Act of 1975, enacted in response to the Arab oil embargo, raw crude must be processed before it is exported. Under regulations issued by the Commerce Department’s Bureau of Industry and Security, condensate falls within the definition of crude oil and cannot be exported unless it is first processed. The Commerce Department can issue licenses to export under certain exceptions to the law; however, these licenses are rarely granted.

Oil companies have complained that processing condensate is difficult with current infrastructure and would require a substantial investment in new equipment. As a result, many companies are calling for the current ban on exports of raw crude oil and condensate to be lifted.

Sen. Lisa Murkowski (R-AK) has also argued that the Commerce Department can take action under its existing authority by updating its regulations to remove condensate from the definition of crude oil altogether. “The Department of Commerce retains the authority to allow condensate exports by modernizing its regulations, as it has done repeatedly since the 1970s.” This would mean that condensate would not need to be processed at all before it is exported.

In what may be a move toward lifting the ban, on June 24, the Commerce Department issued private decisions to allow two Texas-based companies to export condensate that has been “minimally processed” (stabilized and distilled). The Commerce Department says it is considering revisions to the existing regulations, but the recent decision does not represent a change in existing policy [subscription required to access full link]. Companies must minimally process the oil, meaning that exports of raw crude are still prohibited.

Any easing of the crude oil ban is particularly troubling given recent reports that unprocessed condensate is combustible and potentially responsible for several recent explosions of rail cars carrying light crude, including last year’s incident in Quebec that left 47 people dead and destroyed a town.

The Commerce Department’s recent decisions raise serious questions about whether the long-standing crude oil ban should be lifted without first issuing regulations that require volatile crude to be stabilized in the field before it is transported. According to the Wall Street Journal, condensate from North Dakota’s Bakken Shale formation is not processed in the field before it is transported via rail cars and is also the subject of ongoing investigations.

The federal government is currently considering whether stabilization should be required; however, oil companies argue that this would impose serious costs due to the equipment needed to process the light crude and may slow development of the Bakken formation.

Additional pressure to accelerate energy exports is being brought by the European Union (EU). A recently leaked trade document from the EU calls on the U.S. to agree to a separate energy chapter in the Trans-Atlantic Free Trade Agreement (TAFTA), in which the U.S. would commit to “the free export of crude oil and gas resources . . . automatically and expeditiously.” Under the document, the U.S. would change existing procedures for examining the impacts of natural gas and crude oil exports, agreeing to a legally binding commitment for all exports to the EU to be granted without review.

Following the release of that document, Sen. Edward Markey (D-MA), chairman of the Senate Foreign Relations Subcommittee on International Development and Foreign Assistance, Economic Affairs, International Environmental Protection, and Peace Corps, responded, “Attempting to use a transatlantic trade agreement to scuttle established U.S. law prohibiting the export of America’s oil would be a titanic mistake for our consumers, national security, and energy policy.” He added, “Exporting our crude oil is not the answer for anyone but oil companies.”

Lifting the crude oil ban is also likely to increase the use of fracking throughout the U.S., adding to already existing concerns about threats to public health and the environment from the practice. The potential impact on public health and the environment, as well as public safety and energy policy, must all be addressed before any decision to revise our nation’s oil export policies.