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Gross U.S. imports of crude oil and petroleum products averaged Mb/d in , down 17% since . Policy Considerations. .. imports. The U.S. oil supply-demand balance is presented for context in Table 1.
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There is a growing consensus that U. Such forecasts are predicated on expectations that current laws supporting fuel efficiency and domestic supply are not reversed and that oil prices continue to rise. While volumes may remain flat, rising prices could still increase the cost of oil imports. There is congressional interest in further reducing the potential risks posed by import dependence. Policy options generally fall into four categories: Read more Read less.

Product description Product Description Despite long standing concern by policy makers, U. Kindle Edition File Size: Congressional Research Service 1 April Sold by: Share your thoughts with other customers. Write a product review. The President could reverse those directives via another executive order, or opt to not issue a new order when the current one expires. However, this could create a number of practical problems, as it would nullify federal authority to administer all export controls set forth in the EAA.

Also, while allowing the effectiveness of the EAA provisions to lapse would prevent administration of the BIS export license requirements, it would still leave in place the mandate of EPCA to restrict crude oil exports, a mandate that the Administration would be required to address. Congress could also leave current restrictions in place, thereby maintaining the requirement for the President to limit U. According to supporters of this position, maintaining crude oil export restrictions is warranted since the United States is, and will be, reliant on imports, and crude oil price discounts in the United States will be eliminated as domestic and global prices converge.

Should existing export restrictions remain in place, there may be several potential outcomes to consider. While refineries can adjust their processes to accommodate changing crude oil qualities, they will likely make the necessary capital investments to do so only if the economics are warranted. Lower, or discounted, LTO prices would be an economic consideration—along with the expected longevity of price discounts—for refiners when making capital investment decisions.

However, the price discount needed to motivate refiners to make capital investments—and whether the price discount would be large enough to markedly reduce oil production—is uncertain. Additionally, the ability of oil producers to innovate and improve efficiencies that would allow for profitable operations in a price-discounted market environment is possible but also uncertain. Nevertheless, maintaining current export restrictions may result in some oil producers receiving lower prices—compared to global benchmarks—for oil produced.

Lower prices may result in less U. However, it is not clear at what price point oil producers might curtail production, and each producer location has different economic considerations. Furthermore, crude oil export regulations are open to interpretation, and it is likely that oil producers will seek more export opportunities that might be allowed under the existing regulatory framework see Appendix C.

Inconsistencies in the crude oil definition see "Condensate" text box above as well as a lack of clearly defined terms i. Barring any legislative or administrative action to remove or modify crude oil export restrictions, this is the likely path forward for oil producers to export more material into the global market. However, it is unclear how widely or narrowly BIS will interpret existing laws and regulations and the level of additional exports that might occur should producers explore export options within the current regulatory framework. Between lifting oil export restrictions altogether and maintaining them in their current form are a variety of policy options that might be considered.

Some examples of such policies might include the following:.

  1. .
  2. .
  3. ;

There are a number of other options for modifying existing restrictions that might be considered. Each option could impact the market and individual stakeholders in different ways. Congress may choose to study and analyze various considerations associated with efforts to modify crude export restrictions.

During the th Congress, several bills were proposed that would eliminate current crude oil export restrictions. Essentially, each bill proposed to modify the Energy Policy and Conservation Act by removing the requirement that the President promulgate a rule prohibiting the export of domestically produced crude oil. Following is a list of four bills that were proposed in the th Congress:. Comparison of Economic Impact Studies.

As debate about U. Table B-1 compares four of the published studies in terms of major areas covered that may be of interest to Congress. Comparing these studies on a truly equivalent basis is difficult since each study uses a different methodology, approach, model, and set of assumptions to derive results. Additionally, study results can be influenced by oil market conditions, which can change over time, at the point the study was conducted. Finally, one of the unknown factors in the studies that is quite difficult to assess is how the Organization of Petroleum Exporting Countries OPEC might respond i.

However, an OPEC action could affect the economic and market impacts of a change in export policy. Nevertheless, there are some general themes that are consistent among the compared studies. Assuming that crude oil export restrictions are removed, 1 U. The magnitude of these effects varies, in some cases considerably. Table B-1 provides an overview assessment of results from the included studies. However, there are a number of variables and caveats associated with each study.

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Therefore, readers are encouraged to review the full study reports in order to obtain context and understand the assumptions and caveats associated with individual study results. In addition to the four studies compared in Table B-1 , other impact studies and analysis from the Aspen Institute, the Government Accountability Office GAO , and the Congressional Budget Office CBO have been published that consider economic, price, and budget effects associated with removing crude oil export restrictions.

Analyzed set of 18 cases and considered different options: Analyzed free trade versus restricted trade policy scenarios for "base" and "potential" oil production cases. Free trade and restricted policy scenarios considered how crude oil prices might be affected under the two policy scenarios; price discounts under a restricted policy and price convergence with international crude oil prices under the free trade policy. Two market scenarios were created and evaluated: Focus of this study was on PADD 2 Midwest region , which at the time of the study was the location of much crude oil oversupply.

Calculated price differentials for each PADD compared to WTI , which were input into a small static simulation model that is calibrated to world oil market conditions for Assuming oil export restrictions are removed in , U. HOGR and the time frame considered. Assuming oil export restrictions are completely removed, U. Assuming oil export restrictions are removed, U. Assuming that crude oil export restrictions are removed and using different assumptions for elasticity and cost reductions in global refinery operations, the study evaluated global wholesale gasoline prices.

Generally, global wholesale gasoline prices, including U. Assuming that crude oil export restrictions are removed, world crude oil prices decline. Magnitude of the oil price decline varies: General directions for U. International prices then decline. Assuming export restrictions are removed, domestic WTI prices would rise, the amount of which varies depending on the scenario low or high differential.

International Brent crude oil prices would decline if export restrictions were removed, although the price impact would be relatively small: Removing crude oil export restrictions would result in the price of light crude oil in the Midwest to rise toward global prices. Increasing global crude oil supplies would put downward pressure on international crude prices, if OPEC does not respond. This price increase is based on the crude oil price delta at the time the study was performed. Changes to elasticity assumptions affect price impacts. See study report for more information. Assuming restrictions removed in Average crude oil production for the period to increases by 1.

Should export restrictions be removed, and depending on the scenario low and high differential , U. Not available for U. Study estimates that oil production in the Midwest and areas of Canada that supply the Midwest would increase by approximately 84, barrels per day. Production level changes in this region are highly dependent on the crude oil price discount. Changes in crude oil exports resulting from elimination of export restrictions ranges from an increase of 1 million barrels per day to more than 5 million barrels per day depending on the reference and high oil growth scenarios.

Under the free trade policy scenario, crude oil exports excluding those to Canada peak at 1. Removing export restrictions results in an average of approximately 2. This is approximately 1. Gross export levels are essentially the same under the low- and high-differential cases. National Economic Research Associates NERA analyzed the "average annual reduction in Unemployment" during the period to under the reference and high oil growth cases. Average annual reductions range from 25, to nearly , under the reference case and 50, to nearly , under the high oil growth case.

Study assumes the economy is at full potential in consistent with CBO projections and states that "job growth may be increased in one sector and lowered in another when changes like crude exports occur. In the base production case, allowing crude oil exports supports an increase of , jobs direct and indirect annually, on average. In the potential production case, allowing crude oil exports supports , jobs direct and indirect annually, on average.

Most job gains occur in the early years of the forecast period , while moderate job gains occur in the latter years. Direct and indirect job gains from allowing exports over the forecast period to , annual average: Economic Opportunities from Lifting the U. Ban on Crude Oil Exports," September All prices and changes to prices are reflected as reported in each study and are not adjusted. A Change in Energy Policy? With some exceptions, crude oil exports are prohibited under current law, while many petroleum products may be freely exported without requiring a license from the Department of Commerce's Bureau of Industry and Security BIS.

Limited domestic marketability of "lease condensate," combined with crude oil export restrictions, is motivating oil producers to pursue export markets as a way to increase the value of this hydrocarbon material. In June , it was reported that BIS ruled to allow processed condensate to be exported by two firms. Press reports about the BIS rulings resulted in debate about whether this represents either a change to crude oil export policy or an administrative ruling within the existing regulatory framework.

The BIS crude oil definition specifically includes "lease condensate," which is subject to export restrictions:. Drip gases are also included, but topped crude oil , residual oil, and other finished and unfinished oils are excluded. However, the definition also includes language that may allow for processed crude oil and condensate to be exported.

As a result, the regulation allows for some degree of interpretation with regard to the amount of processing necessary to qualify as an exportable product. Lease condensate, typically produced with natural gas, is one aspect of the crude oil export debate with several complexities and considerations i. Some exports permitted by the regulations may be available for a license exception, under which the exporter certifies that a lawful transaction is taking place.

For goods subject to the EAR, if an exporter is unsure about an item's classification and the resulting controls on that item, the exporter may request a commodity classification from BIS. Commodity classifications generally are used to determine the control status of sensitive or strategic "dual-use" products controlled for national security or foreign policy reasons. However, these procedures are available to classify any product subject to the EAR, including crude oil. The end result is a determination that an item is described in an existing classification or is classified as an EAR For raw material such as crude oil, BIS may concentrate on the process i.

However, for most dual-use goods it is the control status of the product, not the process by which it is produced, that is being determined. Press reports indicate that two companies submitted separate applications to BIS requesting an official classification that would allow processed lease condensate to be exported as a product, without requiring a license. Details of the applications and BIS rulings, by law and in accordance with the Export Administration Act, are confidential. However, a July presentation provides some insight into the content and approach of one processed condensate application.

After considering the application, BIS issued a ruling to the company that classifies the processed condensate as an EAR99—no export license required—product. C2-C5 refers to the number of carbon atoms contained in different hydrocarbons. Some industry observers indicate that the BIS rulings represent a policy change and may result in large volumes of minimally processed crude oil being exported. However, the Administration has publicly stated that there has been no policy change and that the two rulings are within the scope of current regulations. Logic supporting the industry observers' argument is the following: Since, by definition, condensate is crude oil, then applying the same process to crude oil would result in exportable product.

It is important to note that the rulings are specific to products that result from stabilizing and distilling condensate. Applying the same stabilization and distilling processes to crude oil may result in a different output stream and include products that may or may not be considered export eligible. While the two BIS condensate rulings may not result in mass export volumes of domestically produced crude oil and condensate, they will likely result in an increased number of applications to BIS requesting classifications that push the envelope to determine how much crude oil and condensate processing is necessary to result in export-qualified products, especially in light of ambiguity and the lack of clearly defined terms within the crude oil definition.

In July , it was reported that processed condensate applications at BIS were being "held without action. Dan Shedd, CRS Legislative Attorney, is recognized for his contributions to the legal and regulatory sections of this report. The Case for Allowing U. Crude Oil Exports," July 8, Naphtha is a refined or partially refined light hydrocarbon that is blended or mixed with other hydrocarbons to make motor gasoline or jet fuel. Naphtha can also be used as a solvent or petrochemical feedstock.

For more information, see EIA glossary at http: Renovating the Architecture of U. Energy Exports," January 7, Trade Representative, December 3, Bradley, Oil, Gas, and Government: Experience , Cato Institute, Federal government crude oil export regulations date back to as early as For additional background on U. Exports by Destination, http: Re-exports of non-commingled foreign crude oil are allowed under current export restrictions. Short Supply Controls," February 28, Crude oil slate refers to the blend of different crude oils a refinery might process to yield a desired set of petroleum products.

For example, Canadian crude oil transported to the U. Gulf Coast via the controversial Keystone XL Pipeline, if it met the commingling requirement, would be eligible for export. Overview and Recent Developments , by [author name scrubbed] et al. Short Supply Controls, February 28, BIS has provided a list of questions that should be addressed by swap applicants. For a copy of these questions, please contact [author name scrubbed]. Mexico officials have publicly expressed interest in exchange transactions with the United States.

Export Control System and the President's Reform Initiative , by [author name scrubbed] and [author name scrubbed]. Reg 19, May 2, Legal Framework , by [author name scrubbed]. Note that similar legislative veto provisions elsewhere in the U. Code were declared unconstitutional in INS v. Turner, Mason, and Company, "U. Industry Responses and Impacts," February 28, Energy Information Administration online glossary, available at http: For additional analysis of the U. Background in Changing Markets and Fuel Policies , by [author name scrubbed] et al.

For additional information about U. For additional background about U. For example, Enbridge is in the process of developing the Sandpiper Project, a new pipeline that would transport Bakken crude oil from North Dakota to Wisconsin. For more information, see http: Rail Transportation of Crude Oil: Background and Issues for Congress , by [author name scrubbed] et al.

The Jones Act requires that vessels transporting cargo between two U. Crude Oil by Water: Vessel Flag Requirements and Safety Issues , by [author name scrubbed]. It is generally used a benchmark for world oil prices. Opportunities and Challenges," January 30, Shale Changes Everything," November 14, Prior to the Arab oil embargo, world oil markets were controlled by U. Concern with "energy security" is related to the reaction in the United States to the "oil shocks" of the s when Americans first realized that the cost, and even availability, of gasoline could be interrupted for political reasons.

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Since the s Presidents have sought, to one degree or another, to isolate the nation from the politics of world oil markets, to little effect. Nigerian imports to the United States are mainly light, sweet crude, which the United States is producing more of. John Kemp, "America's energy revolution transforms international relations," Reuters, January 28, , pp.

Opportunities and Challenges , January 30, OPEC tries to manipulate oil prices by controlling its production, but only Saudi Arabia maintains significant spare production capacity to adjust to immediate changes in market conditions, which is why it is referred to as the swing producer for oil.

When production from other countries is disrupted Saudi Arabia may increase its production to maintain a target price, while it may cut production to make room for additional supplies from OPEC and non-OPEC countries. However, Saudi Arabia has used its position for its own ends and contrary to OPEC's goals, most notably when it crashed prices in Oil Export Ban," September 1, It is unclear how these two condensate products compare with regard to quality API and sulfur content and consistency.

Variations could enlarge or reduce the actual price spread. Trade , July 8, Letter available at http: Note that this dataset indicates only the mode used for the last leg of such shipments.


U.S. Crude Oil Export Policy: Background and Considerations

Some shipments may involve multiple modes, such as rail to barge. In Brief , by [author name scrubbed]. In December , the state of New York announced a ban on hydraulic fracturing. The Case Against U. Limitation on Congress's Taxing Power , by [author name scrubbed]. EPCA is one law that restricts the export of crude oil.

In addition, any new rule or amendment to the existing rule would also have to be considered a reasonable interpretation of the statutory language. During the th Congress, Senators Markey and Menendez sent multiple letters to the President and members of the Administration arguing that crude oil export restrictions should remain in place and should not be modified. Content and analysis contained in letters from Senators Markey and Mendez include 1 keeping U. The Impact on U. Manufacturing , October Topic Areas About Donate. Crude Oil Export Policy: The effect on domestic gasoline prices is a major consideration, among several, associated with allowing crude oil exports.

Commercial studies and federal government analysis suggests that gasoline prices are correlated to international crude oil prices—since gasoline and other petroleum products can be exported without restriction—and U. Congress may choose to consider crude oil export policy options that could range from maintaining existing restrictions to eliminating the prohibition on crude oil exports. During the th Congress, four bills were introduced that would have eliminated crude oil export restrictions: Some Members of Congress have expressed the desire to maintain crude oil restrictions.

However, maintaining restrictions might not prevent more crude-oil-like material from being exported, because varying interpretations of existing regulations may allow for more exports. The crude oil definition in the export regulations is open to interpretation and has many undefined terms that the industry may explore with the objective of determining the minimum amount of crude oil processing necessary that would result in an exportable product. It is not clear how broadly or narrowly BIS might interpret existing laws and regulations. Finally, Congress may choose to explore other options between eliminating and maintaining restrictions.

Examples may include allowing exports of lease condensate—an ultralight hydrocarbon that is typically produced with natural gas—allowing unrestricted exports to Mexico since exports to Canada are not restricted, allowing a certain type of crude i. The President has the authority to make national interest determinations that would allow for more crude oil exports.

US wants allies to end oil imports from Iran

During an era of oil price controls and following the Organization of Arab Petroleum Exporting Countries oil embargo, Congress passed the Energy Policy and Conservation Act of EPCA , which directs the President "to promulgate a rule prohibiting the export of crude oil" produced in the United States. As a result of advanced oil drilling and extraction technologies primarily horizontal drilling and hydraulic fracturing , crude oil production in the United States is growing and, according to Energy Information Administration EIA reference case projections, may reach 9.

LTO production has increased, some have called for crude oil export restrictions to be either eased or lifted altogether. Each of these aspects is discussed in more detail throughout this report. As a result, production and export of these products have increased in recent years. In August , approximately 4. Members of Congress have taken various positions regarding crude oil exports, including 1 calling for the Administration to lift export restrictions, 9 2 maintaining existing restrictions, 10 3 opposing attempts to lift restrictions through the World Trade Organization, 11 and 4 proposing bills to eliminate crude oil export restrictions see section below titled "Legislative Action".

The crude oil export policy debate has multiple dimensions and complexities. LTO production has increased—along with additional oil supply from Canada—certain challenges have emerged that affect some oil producers and refiners. While the economic arguments both for and against U.

This report provides background and context about the crude oil legal and regulatory framework, discusses motivations that underlie the desire to export U. Current crude oil export restrictions date back to the s, during an era of U. Using these exceptions, the United States has exported crude oil for decades, although in relatively low volumes. In the context of exports, the Bureau of Industry and Security BIS —the Department of Commerce agency responsible for crude oil export licenses—defines "crude oil" as follows:.

Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonite, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded. From to , U. During this time, there were periods when easing crude oil export restrictions was a national-level policy topic and presidential determinations were made to exempt crude oil exports that met certain criteria. The physical and chemical properties of LTO, when placed into context of the crude oil slate 21 desired by U.

For more information about crude oil characteristics, see the text box below. Hundreds of different types of crude oil are produced globally, each of which has unique qualities and characteristics.

Two of the most common parameters used to compare different types of crude oil are 1 API gravity, and 2 sulfur content. API gravity, expressed in degrees, indicates the density of crude oil. The higher the API gravity, the lighter the crude oil. Sulfur content, expressed as a percentage, indicates the amount of sulfur contained in a particular crude stream. High sulfur content crudes are referred to as "sour" and low sulfur content crudes are referred to as "sweet.

The following table compares five different types of crude oil based on API, sulfur content, and initial product yield. Product yields represent typical initial yields off atmospheric and vacuum towers, which is generally the first step in the refining process. Additional processing steps i. Individual refineries are typically configured to handle a certain blend of crude oils that will produce an optimized volume of initial and finished products.

Naphtha can also be used as a solvent or as a petrochemical feedstock; 5 Other generally refers to light refinery gases such as butane and propane. The technical configuration, product markets, and economic conditions for each individual refinery will affect the desired crude oil selection. Prior to the advent of advanced drilling and extraction technologies, many U. Generally, these investments were encouraged by price discounts for heavy crudes.

Tight oil production has changed the situation and the entire industry is adjusting. Investments are being made to process more light crude. Transportation bottlenecks are being relieved. However, as LTO volumes increase, oil producers are bracing for continuing price discounts that may result from a structural oversupply of light crudes in certain regions. Whether the industry will be economically motivated to continue adjusting to accommodate expected light crude production and supply is uncertain. The export of domestically produced crude oil has been significantly restricted since the s by an array of federal laws and regulations, in particular the Energy Policy and Conservation Act of EPCA 23 and the resultant Short Supply Control Regulations adopted and administered by the Bureau of Industry and Security BIS.

These laws and regulations are discussed below. EPCA directs the President to "promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States, except that the President may The regulations provide that a license must be obtained for all exports of crude oil, including those to Canada. The regulations provide that BIS will issue licenses for certain crude oil exports that fall under one of the listed exemptions, including 1 exports from Alaska's Cook Inlet; 2 exports to Canada for consumption or use therein; 3 exports in connection with refining or exchange of Strategic Petroleum Reserve oil; 4 exports of heavy California crude oil up to an average volume not to exceed 25, barrels per day; 5 exports that are consistent with certain international agreements; 6 exports that are consistent with findings made by the President under certain statutes see section below titled " Other Relevant Federal Statutes " ; and 7 exports of foreign origin crude oil where, based on satisfactory written documentation, the exporter can demonstrate that the oil is not of U.

The regulations also direct BIS to review applications to export crude oil that do not fall under one of these exemptions on a "case by case basis" and to approve such applications on a finding that the proposed export is "consistent with the national interest and the purposes of the Energy Policy and Conservation Act. The regulations provide that while BIS "will consider all applications for approval," generally BIS will only approve those applications that are either for temporary exports e. The BIS crude oil export regulations allow for exchanges with an "adjacent foreign state" and other foreign states as long as the criteria for each are met.

It is important to recognize that these two types of exchanges have different criteria. Exchange transactions are allowed between the United States and foreign countries that are not adjacent as long as the following criteria are met:. Exactly how the Department of Commerce might evaluate exchange applications is unclear; however, adhering to some of the criteria requirements may be difficult for applicants.

According to the Department of Commerce, no such exchange transactions have ever been approved. In contrast, exchanges allowed between the United States and an "adjacent foreign state" do not need to meet the stringent criteria required for exchanges with other foreign states. Crude oil can be licensed for export when exchanged in similar quantity with adjacent states for "convenience and increased efficiency of transportation," terms which are not defined in the regulations.

A license is required for each adjacent foreign state transaction. Although EPCA directs the President to promulgate regulations that restrict crude oil exports, it does not provide the regulatory framework for enforcement of that restriction and the issuance of licenses for eligible exports. As mentioned above, the BIS is tasked with that duty, which is handled under its "short supply control" regulations.

The source of this authority is somewhat complicated. The Export Administration Act of EAA 37 confers upon the President the power to control exports for national security, foreign policy, or short-supply purposes, authorizes the President to establish export licensing mechanisms for certain items, and provides guidance and places certain limits on that authority.

However, the EAA expired in August The provisions of the act, and the regulations issued pursuant to it, remain in effect by a presidential declaration of a national emergency and the invocation of the International Emergency Economic Powers Act IEEPA. In addition to the statutes described above, several other federal statutes either bar certain types of crude oil exports or mandate that certain crude oil exports be exempt from the general prohibition in EPCA. Section of P. In April , President Clinton issued a determination that such exports were in the national interest.

Section 28 u of the MLA clarifies that all domestically produced crude oil except oil exchanged for similar quantities for purposes of convenience or efficiency transported through federal lands via rights-of-way granted pursuant to the MLA "shall be subject to all of the limitations and licensing requirements of the Export Administration Act.

As noted above, exports of crude oil are licensed under the short supply controls of the Export Administration Act. The Export Administration Regulations EAR codify the requirements and provisions of the various statutes restricting crude oil exports, which are administered by the Bureau of Industry and Security. Except in certain instances, a license is required for the export of crude oil from the United States. Within nine days, BIS must contact the applicant if additional information is required; return without action if additional information is required or if a license is not needed; or refer the application to another agency.

Once an application has been submitted, BIS has 30 days to make a decision. However, unlike dual-use technology licenses, crude oil licenses are not referred to other agencies. Thus, most crude oil licenses are handled within a day period. A license is good for one year and is non-transferable, unless it is part of the assets of a company being bought or sold.

Certain crude oil exports can be shipped with a license exception. A license exception is an authorization to export or re-export, under certain conditions, items subject to the EAR that normally would require a license. Basically, under a license exception, the exporter certifies that a lawful transaction is taking place while maintaining proper documentation. The three license exceptions available for crude oil exports are 1 shipments of foreign-origin crude stored in the Strategic Petroleum Reserve; 2 shipments of samples for analytic or testing purposes; and 3 Trans-Alaska pipeline shipments.

In order to use the TAPS license exception, certain tanker routing and environmental restrictions must be observed. In addition, the licenses allow no re-exports, thus, prohibiting, for example, trans-shipments to foreign destinations through Canada. The number of crude oil license applications has steadily increased over the last few years, from 31 applications in FY to in FY In the last several years, no licenses have been rejected, although some have been returned without action. This high approval rate is likely due to the specificity and exporters' knowledge of the regulations.

The vast majority of licenses are for exports to Canada.

U.S. Crude Oil Export Policy: Background and Considerations

For countries other than Canada, the exports can be attributed to re-exports of foreign crude oil mostly Canadian crude that has not been commingled with domestic crude. As tight oil production has rapidly increased, technical and economic factors are motivating some stakeholders to pursue lifting crude oil export restrictions. Some oil producers would like to receive higher prices for oil produced.

However, some refiners are concerned that regional crude oil acquisition price discounts may narrow if exports are expanded. Narrow price discounts may affect refinery operating margins and may result in some refineries ceasing operations. Additionally, some refiners may need to consider capital investments necessary to absorb increasing volumes of LTO—along with the value of products yielded from refining LTO.

As mentioned above, the geographic location of tight oil production, refinery configurations, infrastructure limitations, and prices received by some oil producers have been cited as justification for lifting export restrictions. However, it is important to realize that these factors are not static in nature. Rather, the industry is dynamic and is constantly changing. Refineries can adjust their operations. Transportation infrastructure can adjust based on market conditions.

Therefore, oil values received by oil producers would likely adjust as well. In , the Energy Information Administration stated:. Some recent commentary has suggested that it was likely or even inevitable that the growth in U. However, this is likely an overstatement of the actual situation, because there are several other midstream and downstream adjustments that could help to accommodate changing production patterns. The dynamic nature of the oil industry makes the debate about oil export policy inherently complex. Each of the three primary industry segments—production, transportation, and refining—will adjust based on changes to any one of the other segments.

As a result, it can be difficult to assess the potential impacts of policy decisions on any one segment without considering how the other two might adjust to changing market conditions. With that caveat, additional detail about some of the motivations for crude oil exports is provided in the following sections. It is important to note that EIA projections for LTO production are subject to assumptions that are based on currently available information and current policies e.

These projections would likely change over time as new information becomes available and if policies are modified. For example, EIA's high resource case projects that tight oil may peak at 8. Future projections, and actual production, may be either higher or lower than those included in EIA's Annual Energy Outlook. Timing for a potential oversupply, and resulting price discounts, of U. LTO is also uncertain and depends on several factors. Tight Oil Production, by Formation. The area chart shows EIA's reference case projections for tight oil production by formation.

The disparity between these two projections illustrates some of the uncertainty associated with long-term tight oil production in the United States. Locations for tight oil formations are as follows: The implication of the reference case production profile is that the window of opportunity for crude oil exports—depending on export volumes—may be temporary. The potential temporary nature of the export opportunity may reflect the continuous and rapid drilling that may be needed to maintain and increase LTO volumes.

As noted above, actual and projected production can, and does, change over time. The high resource case reflects how industry knowledge could expand and technologies could improve, thereby resulting in increased U. LTO production in the future. LTO production at scale is a relatively new industry development and, thus, it is likely too early to accurately predict the magnitude of future production levels. One element of LTO production is the increase in extremely light hydrocarbons that might be classified as lease condensate, which is subject to export restrictions. While there is no quality characteristic i.

For additional information, see the text box below. Production of lease condensate, especially in the Texas Eagle Ford formation, has emerged as a topic of debate in the context of U. As the name implies, condensate is generally a gas underground. When produced along with oil and gas, it "condenses" into a liquid at atmospheric temperature and pressure. According to one source, the majority of Eagle Ford condensate is being produced from natural gas wells, not crude oil wells. BIS defines crude oil as hydrocarbons that existed in liquid phase underground.

However, condensate is generally in a gas phase underground and condenses to a liquid at atmospheric conditions. This apparent contradiction, along with other considerations, raises questions about the applicability of export restrictions to condensate. Light liquid hydrocarbons recovered from lease separators or field facilities at associated and non-associated natural gas wells. Mostly pentanes [hydrocarbons with five carbon atoms] and heavier hydrocarbons. Normally enters the crude oil stream after production. There is no industry- or government-wide lease condensate definition nor are there standard quality characteristics—such as API gravity—used to classify what is and is not lease condensate.

Additionally, there is limited information available that quantifies actual and expected volumes of lease condensate produced on an annual basis, because lease condensate is typically classified as crude oil for reporting purposes.

U.S. Crude Oil Export Policy: Background and Considerations -

However, each state has a unique lease condensate definition, and the self-reported results may not accurately reflect total production volumes. As a result, it can be difficult to accurately assess condensate production volumes when considering policy options that might allow this material to be exported. Results from these efforts were not available as of the date of this report. Furthermore, the EIA definition of condensate is very similar to the definition of "natural gasoline," which is defined as being "equivalent to pentanes plus.

Some market analysts have indicated that depending on the season—winter or summer—identical hydrocarbons can be classified as either natural gasoline, which can be exported without restriction, or condensate, which is subject to export restrictions. Finally, the BIS crude oil definition states that crude oil hydrocarbons that have not passed through a distillation tower are subject to export restrictions.

In order to comply with the regulation, investments are being made to install stand-alone condensate splitters—essentially a basic distillation tower—that separate the components e. The resulting condensate components are eligible for export to international markets. This decision sparked much debate about whether this represents a change in policy or an administrative ruling within the existing regulatory framework.

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  • It is important to note that the BIS crude oil definition is open to interpretation, and it is likely that the industry will pursue avenues within existing regulations to maximize the amount of minimally processed crude oil and condensate that can be exported. For additional information about the BIS processed condensate commodity classifications, see Appendix C. As a result of the above considerations, some industry stakeholders have called for condensate to be removed from the BIS definition.

    Some producers have begun self-classifying processed condensate and will be exporting more of this material in the absence of a commodity classification or a license from BIS. This is allowed under the current regulations. However, BIS released regulation guidance to applicants regarding processed condensate, including some factors that are considered when evaluating processed condensate commodity classification requests. Actual and projected LTO production levels are affecting the refining and infrastructure segments in a variety of ways, and vice versa. How these segments might adjust to changing market conditions i.

    As of October , there were oil refineries in the United States with a total operable capacity of In the context of exporting crude oil, refineries located in the Petroleum Administration for Defense District PADD 3 provide an illustration of some of the emerging complexities and economic decisions that are being considered as LTO production increases in the Gulf Coast area, and as Canadian and Midwest crudes are delivered to the region.

    There are 43 refineries located in PADD 3, with a total operable refining capacity of approximately 9. Generally, the decision to add coking capacity to a refinery is based on an expectation that the refinery will be able to purchase heavier crude oils that generally sell at a discount, and can yield certain oil products that are highly valued in domestic and international markets.

    Investments in coking capacity were made based on an expectation that price-discounted heavy crudes from Canada and Latin America would be increasingly available. Numbers may not sum due to rounding. PADD 2 tight oil production is for Bakken only. Increased production—both actual and forecasted—of LTO in PADD 3, primarily from the Eagle Ford and Permian Basin tight oil formations, may cause some refiners in this region to assess their optimal economic operating parameters.

    Each individual refiner will likely evaluate economic conditions—crude oil prices and product values—to determine if processing additional volumes of LTO is economically justified. While it may be challenging for PADD 3 refiners to process increasing volumes of LTO based on a refinery's current configuration, investments can be made to handle additional volumes of LTO.

    However, LTO price discounts, product values and volume commitments, investment requirements, and economic optimization for each individual refinery will dictate the additional volume of LTO that is ultimately absorbed. Whether such investments might actually be made is beyond the scope of this report. In addition to making investments in refining equipment, reducing import volumes of light sweet crude into PADD 3 is one possible avenue for absorbing more domestically produced LTO, but some refiners may have already exhausted this option. Indications are that light sweet crude imports are approaching extremely low levels and there may be limited opportunities to further reduce light sweet imports—based on current refinery configurations—if U.

    LTO production continues to increase as projected. Additionally, some estimates project that total North American light crude oil imports may go to zero by the end of However, foreign oil suppliers—notably Saudi Arabia and Venezuela—have ownership positions in some U.

    These countries could choose to continue providing oil, in some cases at discounts compared to available U. Should countries elect this option, there may be limits to reducing crude oil imports. The ability of refiners to utilize more LTO is one consideration. However, transporting crude oil from production fields to refiners is another issue that can impact LTO price discounts and refining economics. One consideration for U. Delivery infrastructure, and the cost associated with various transportation modes, can affect the value of oil that is produced in certain locations.

    LTO production growth in certain parts of the country is resulting in some constraints associated with moving crude oil to refiners. Crude oil is transported via pipeline, rail, marine vessel, and truck. Pipelines are the primary means of crude oil transportation in the United States. CRS using data from Platts Quarter 4, dataset.