(Reuters) - Oil
producers considering swapping U.S. light crude abroad for the heavier imported oil needed
by refiners to work around a decades-old ban on exporting domestic crude may
find the strategy harder to execute than it looks on paper.
As U.S. production of light
crude oil
continues to boom, some companies and lawmakers are calling for the United
States to reform its decades-old ban on most U.S. crude oil exports - a policy that followed the Arab
oil embargo of the 1970s.
A breakthrough arguably came this
week, when U.S. officials clarified that a type of ultra-light crude known as
condensate could be exported after enough processing to qualify as a refined
product, exports of which are allowed. Swaps would be another way to test the
ban's limits.
In theory it should take just weeks
for Washington to allow oil producers to execute a deal, since these swaps are
allowed by law. But analysts say meeting the base requirement - that the
imports be of the same quantity and quality as the exports - is easier said
than done.
The current law does not clearly
define quality - for example, whether a heavier crude such as the kind Mexico
produces is of higher quality because it is compatible with U.S. refining
capacity, or lower quality because of its density.
"Ensuring that crude swapped in
is of the same quantity and quality as crude swapped out, which is a loose
paraphrase of one of the regulation’s many stipulations, may be
non-trivial," said Kevin Book, policy analyst at ClearView Energy
Partners.
The Commerce Department's Bureau of
Industry and Security, which oversees exports, has received at least one
application for a permit to export crude through a swap deal, Reuters has
reported.
Earlier this month, Continental
Resources confirmed it has applied for a license for a swap "to further
demonstrate the need for a free market for crude." The largest leaseholder
in the booming North Dakota Bakken region did not disclose with which country
it intends to swap.
Current law says U.S. oil can be
exchanged in similar quantity "with persons or the government of an
adjacent foreign state" or temporarily exported across parts of an
adjacent country, and then reentered into the United States.
Adjacent countries could include
Mexico and Panama, according to a BIS official.
U.S. regulations allow a swap of oil
exports for imports only if the home-grown product cannot be marketed
domestically for “compelling” economic reasons.
Analysts said that if a company
makes a strong enough case about the negative economic impacts of excess crude oil production within the United States, approval
could be relatively fast.
“If someone put in the right
application that said ‘I’ve got a distressed crude oil, it’s a
widget that no one needs and its backing up on production’…I would bet they
would get an export license,” said Frank Verrastro, chair for energy and
geopolitics at the Center for Strategic and International Studies.
Export backers said dislocations in
supply will increase in the coming months and years as production from the
Bakken and other plays, ill-suited to current refining needs, continues to
rise.
North Dakota this month passed the
one-million-barrel a day mark in crude production, the state's petroleum
council said on June 17. In 2000, the state produced less than 100,000 barrels
of oil per day.
SWEET AND SOUR
U.S. Senator Lisa Murkowski of
Alaska, the top Republican on the Senate Energy Committee, has pushed for ending
the export ban, citing a range of benefits that would flow to the United
States.
Last month Murkowski issued a staff
report saying swaps of light sweet crude to nearby countries would be one way
to shrink a glut of that type of oil within U.S. borders.
"Exchanges cannot solve the
mismatch between refineries geared to process heavy crudes and record
production of lighter grades of petroleum, but they would be a partial
measure," the report said.
U.S. Energy Information
Administration chief Adam Sieminski has said that the domestic excess of light
sweet oil and Mexico's excess of heavy sour oil offered an opportunity.
Sieminski said in May that the EIA
has no immediate plans to study the option, but that companies and refining
consultants should explore whether it makes economic sense.
"Mexico, I thought, was an easy
one because they are right next door, but other countries in Latin America may
also be suitable candidates – Venezuela would be one," Sieminski said.
Still, not all experts see swaps as
a simple way to get around the export ban.
ClearView's Book said that for
various reasons there is probably only a narrow range of price spreads between
U.S. and Mexican crude that could make a swap worth doing.
And Amrita Sen, chief oil market
analyst at Energy Aspects, said it is "cumbersome" to prove that the
U.S. economy will be better off with swaps and that producers would not be able
to sell the light crude domestically.
Physical limitations could also make
it difficult for U.S. companies to justify swaps with some of the most likely
prospects, including Mexico and South
Korea, she said.
Culled from http://www.reuters.com/
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