A series of questions the US Commerce Department has sent to companies hoping to export processed condensate indicate that administration officials are considering an API gravity cutoff for permitted exports and are concerned about its rulings applying more broadly to crude oil exports.
These questions, which were obtained by Platts, ask potential exporters for thorough descriptions of the condensate they plan to export, both before and after it is processed through a distillation tower, as well for details on market prices, product uses and the company's history selling this processed condensate.
"Have you sold liquid hydrocarbons processed through a crude oil distillation tower covered by the commodity classification?" Commerce's Bureau of Industry and Security asks. "If so, what did the buyer use it for?"
The questions were developed by the agency in late June after it gave Enterprise Products Partners and Pioneer Natural Resources commodity classification rulings which gave those two companies legal backing to export processed condensate.
In those rulings, Commerce's BIS said since Enterprise and Pioneer were processing condensate through a distillation tower that it was not subject to US restrictions on crude exports.
Among these questions is a request for a description of the liquid hydrocarbons before they are distilled, including the API gravity. Sources said this may indicate the agency is considering API gravity as it develops a definition of condensate, which Commerce Secretary Penny Pritzker said will be necessary before the Obama administration considers changes to its crude export policy.
One source said this definition could set, for example, a 50 API threshold for condensate which could be exported, but said this could raise a host of additional questions, such as if lower and higher gravity crudes could be blended to meet this threshold or where this API gravity would be measured, such as at the wellhead or at the port where it would be exported.
The administration could allow exports of condensate above 50 API through a regulatory amendment, but is unlikely to do so in the near term since it would open the debate on crude exports, this source said.
The "process for processing" the condensate companies want to export appears to be the chief concern of BIS as it considers additional rulings. In its questions it asks for details on distillation, how it differs from the process of removing volatile gas from crude so it can be transported, what is outputted and whether the output products are segregated.
"Describe the process for processing the liquid hydrocarbons, including the location, each step, the sequence of steps, what happens to the liquid hydrocarbons in each step, and technical descriptions of the equipment used to perform each step," BIS asks. "Diagrams of the steps, equipment used, and changes to the hydrocarbons are useful."
Sources said that Commerce wants assurances that the processed condensate to be exported is substantially different from crude oil still subject to export restrictions. To this end, Commerce asks about how this processed condensate will be used without "further refining," and if any outputs of the distillation tower could be classified under Schedule B as crude oil rather than a petroleum product.
Schedule B is a numerical system used to classify goods to be exported to another country.
Commerce also asks for details on market prices for processed condensate, a likely further attempt to show the differences between crude and processed condensate.
"How does the market price for processed condensate compare to the price for Brent, WTI, LLS, naphtha, or any other competing liquid hydrocarbons," the agency asks.
Sources claim that more than 30 companies, including producers, midstream companies and trading houses, have sought similar commodity classification rulings. Each of these companies received these series of questions from Commerce.
The US exported processed condensate in August for the second month in a row, US Energy Information Administration data showed Thursday.
According to the EIA, that processed condensate is designated in the monthly data as "kerosene and light gas oils" under "unfinished oils." The US exported 700,000 barrels of that condensate in August, up from 400,000 barrels in July.
