U.S. condensate sale, easing of crude oil export ban, and what it means for Alaska: cracks in the door.

• Author: Gupta, Sourabh
• Position: OIL & GAS

"Since we cannot change reality, let us change the eyes which see reality."

--Nikos Kazantzakis

"Progress is impossible without change, and those who cannot change their minds cannot change anything."

--George Bernard Shaw

During the first week of November 2014, even as plummeting oil prices were roiling the global economy, global oil markets witnessed a minor revolution. On November 4, 2014, the Anglo-Australian resources giant BHP Billiton announced a US$50 million deal to sell 650,000 barrels of Texas lightly-processed, ultra-light oil, known as condensate, to the Swiss trading firm Vitol SA. By stitching up the sale, BHP Billiton is poised to become the first commercial entity to sell US domestically-produced oil overseas without the express permission of the federal government.

The sale constitutes the foremost crack in the four decade-long ban that has governed US crude oil export policy, with minor exceptions. In time, the BHP Billiton sale is expected to be the first of many such deals as voluminous North American oil and natural gas production seeks new markets and higher prices abroad.

A US policy of banning crude oil exports that was built to cope during an age of energy scarcity is giving way, gradually, in this era of growing abundance.

Export Ban History

The origins of the US crude oil export ban date back to the mid-1970s. To alleviate fears of shortages and spiraling inflation in the wake of the Middle East Oil Crisis, as well as to channel then-newly-flowing Alaska North Slope oil to the US West Coast rather than to Japan, the US Congress enacted the Energy Policy and Conservation Act in 1975. The law directed the president to issue regulations that would prohibit the export of domestically-produced crude oil overseas. Limited waiver authority "consistent with the national interest and the purposes" of the law was appended to the Act and, to date, seven exceptions to the ban including exports from Alaska's Cook Inlet to Canada have been permitted.

In important respects, the Energy Policy and Conservation Act bears some interesting parallels with the earlier Natural Gas Act of 1938. This pre-World War II Act required the US Department of Energy to make an affirmative determination that all permits issued to export natural gas from the United States were consistent with the American "public interest." As a practical matter, this "public interest" determination has since been applicable to those countries with which the United States does not have a free trade agreement--in effect, to most countries given that the United States has very few such free trade agreements in force.

As such, both the Energy Policy...