On December 30, 2014, the Commerce Department issued new Frequently Asked Questions on exports of “Crude Oil and Petroleum Products,” the responses to which make it clear that certain types of lease condensate are eligible, without licenses, for export, notwithstanding the general U.S. prohibition on exports of crude oil. The United States has, for many years, generally banned exports of crude oil to all destinations, including Canada.
Notwithstanding this general prohibition, certain exports of crude oil are eligible for receipt of licenses authorizing their export, as follows:
- Exports of crude oil from Alaska’s Cook Inlet;
- Exports of oil to Canada for consumption or use therein;
- Exports in connection with refining or exchange of strategic petroleum reserve oil;
- Exports of certain California heavy crude oil;
- Exports consistent with certain international agreements;
- Exports consistent with Presidential findings; and
- Exports of foreign-origin crude oil not commingled with domestic crude.
Now the Commerce Department is indicating that certain types of lease condensate may also be able to be exported, even without an export license.
Historically, lease condensate, including lease condensate produced from tar sands, gilsonite, and oil shale, has been considered “crude oil” classifiable under ECCN 1C981, and has been subject to the general prohibition on crude oil exports. However, the Commerce Department has now clarified that where lease condensate has been processed through a crude oil distillation tower, it is not considered “crude oil,” but rather a “petroleum product.” Exports of most “petroleum products” are not generally prohibited and, as they are classifiable under EAR99 (the least restrictive export classification), may be made without export licenses, other than (i) if produced or derived from the Naval Petroleum Reserve, (ii) when being exported to an embargoed country (Cuba, Iran, North Korea, Sudan, and Syria), and (iii) in certain other, very limited cases.
“Distillation” is the process of separating a mixture of components according to their differences in boiling points. According to the Commerce Department, in order for liquid hydrocarbons to be classified as “petroleum products,” there must be material processing through a crude oil distillation tower. If there is no processing in the distillation tower, or the processing is de minimis, the liquid hydrocarbons will not qualify as “petroleum products.”
According to the Commerce Department, processes that utilize pressure reduction alone to separate vapors from liquid or pressure changes at a uniform temperature, such as flash drums with heater treaters or separators, do not constitute processing through a crude oil distillation tower. Crude oil processed through such equipment remains classified as “crude oil.”
In light of the above, the key to determining whether or not exports of lease condensate may be made is to determine the proper export classification of that condensate. The Commerce Department has a process to determine such commodity classifications via submission of a CCATS (Commodity Classification Automated Tracking System) request. The nonexclusive factors the Commerce Department will use in determining whether lease condensate has been “processed through a crude oil distillation tower” include:
- Whether the distillation process materially transforms the crude oil, by using heat to induce evaporation and condensation, into liquid streams that are chemically distinct from the crude oil input;
- The change in API gravity between the input of the process and the output of the process;
- The change in percentage of different types of hydrocarbons between the input and output of the process;
- Whether the streams resulting from distillation have purposes other than allowing the product to be classified as exportable petroleum products, such as use as petrochemical feedstock, diluent, and gasoline blendstock;
- Whether the distillation process utilizes temperature gradients and has significant internal structures, such as trays or packing, and differentiated output streams; and
- Whether the distillation uses towers with more mechanical complexity and heat, higher residence time, internal structures that promote condensation and better separation, and a consistent quality liquid streams (also called cuts or fractions) than equipment used to separate vapors and liquids for transportation needs.
Accordingly, companies interested in exporting lease condensate should review these factors and, to confirm an EAR99 classification, submit CCATS requests to the Commerce Department. Upon the Commerce Department’s confirmation of an EAR99 classification, most exports should be able to be made without export licenses.