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Chapter I. Introduction: Setting the State/Upstream

At the end of July 2014, a crude oil tanker began the long journey to a buyer in South Korea— the first unrestricted sale, outside of Canada, of unrefined American oil since the 1970s. Bureaucratic and political decisions now being weighed in Washington will decide the future of the US shale revolution and indeed could reshape the panorama of international energy.

Over the course of 2013-14, the shale revolution has broadened and accelerated, reshaping the fundamentals of the US, and the global energy panorama. The continued buildup of US tight oil, shale gas, and parallel natural gas liquids (NGLs) production is restructuring world energy trade, balances, and prices. In less than a decade, the US flipped from its decades-long role as a major oil importer to a major exporter of oil products, natural gas, NGLs—and sooner than many realize—an exporter of crude oil, even if initially to a very limited extent.

In APEC’s initial work for the Baker Institute on “Natural Gas Liquids in the Shale Revolution” in April 2013, we focused on the pivotal role of NGLs in the emerging shale revolution. The purpose of the current study is two-fold: to review, analyze, and track the substantial changes that have emerged in US oil and gas over recent years and to survey the implications and possible outcomes resulting from the modification or full abolition of the decades-long US crude oil export ban. This second topic is no longer simply a matter of intellectual speculation, as the US Department of Commerce’s Bureau of Industry and Security (BIS) in June 2014 approved the first application for the sale of field condensate—until then considered black oil and so banned from export—to foreign markets, with three cargoes earmarked for summer loading, two to Asian buyers.

The US in recent years has emerged as a global leader in refined product sales, in liquid petroleum gas (LPG) exports, and will soon add liquefied natural gas (LNG) sales abroad in big volume. Since US crude output began to rise steadily in 2009, after four decades of decline from its 1970 peak, increased oil production has not only backed out foreign crude imports, but underpinned a surge in American refining. In July 2014, crude processing volumes hit a new high, the largest volume of oil refined in this market since the EIA began record-keeping in 1982. This too was in part due to US crude export restrictions. Since the end of 2011, US oil production has risen nearly by half to reach about 8.4 MM B/D as of mid-year. Any shift in federal policy that allows for increased crude exports—currently allowed in only a limited fashion, with Canada the main buyer—has worldwide implications for oil and oil product balances.

We therefore focus on shifts in recent Washington energy policy and the direction and implication of changes in US oil exports patterns and their impact on global energy. It must be underlined that this is a situation in flux and that, since changes in US energy policy involve both national politics as well as bureaucracies in at least three separate US departments—Commerce, Energy, and at times the US Treasury—progress will be slow and policy changes often unclear. As this paper will show, this has been particularly the case in the Department of Commerce (DOC) June rulings, which remain shrouded in secrecy and vague in both wording and intent. Further, we will detail and analyze current export policy, in particular the apparent contradiction between government actions and the opaque decision-making surrounding oil export policy. President Barack Obama in early 2013 claimed that “This is the most transparent administration in history.” Despite such declaration, the oil and gas industry has significant difficulty understanding what official policy changes—if any—have taken place or may be implemented in the near future. Billions of dollars of investment in exploration, field development, downstream refinery expansion, and constructing oil/gas infrastructure pivot on this decision-making. Most of all the construction of specialized distillation units to process NGL, known as condensate splitters, hangs on Washington’s decisions.

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