RIYADH: American crude oil seems getting poised to enter the global markets.

The US Commerce Department approval last week permitting export of what is being referred to as ‘condensates,’ is a step in a direction that may prove to be a game-changer.

The US Commerce Department gave Pioneer Natural Resources Co and Enterprise Products Partners permission to ship a type of ultralight oil also known as condensates. It can be refined into gasoline or other fuels. Although crude oil still remains banned from export, under the rulings condensate can qualify as a refined product — and hence permitted to export — as long as the liquid is stabilised and distilled.

Washington had been edging towards lifting the crude oil export ban. In its decision, the US Bureau of Industry and Security (BIS) has determined that condensates minimally processed by cheaper units called stabilisers, which strip out volatile hydrocarbons to ensure safe transport in pipelines, may be freely exported. A beginning has been made.

“The flood gates of exports will be opened now,” Ed Morse of Citigroup was quoted by BBC as saying. Morse emphasised that some 200,000 to 300,000 barrels per day of US condensate could be exported by the end of this year and the volume could double in 2015.

The US is awash in light oil from shale formations, including the ultralight oil often being termed as condensate. From 2011 to 2013, US oil output soared by 1.8 million barrels a day, with 96 per cent of new production in the form of light or ultralight oil, according to the Energy Information Administration.

The exports would make the US a major oil exporter and add to its growing volume of fuel exports. Last year the country exported a record 2.7 million barrels of fuels per day, making the US the world’s largest exporter of gasoline, diesel and other fuels.

As a consequence of the ruling, shipment of condensates could begin as soon as August. Initially, the shipments will probably be small. The US could export 300,000 barrels of condensate per day by the end of the year, a Citi note says.

And this is bound to grow. On a global scale, the additional US production on the world market will mitigate price spikes, as it already has in response to the unrest in Iraq, Syria and Libya.

Congress is not expected to pass legislation lifting the ban on crude exports before the November 4 elections, as no lawmaker wants to be blamed for a move that could boost US oil prices.

One major argument against allowing the US crude to outside world has been that it might cause prices at local gas stations to jump. Not everyone seems to accept it. “It’s not credible to say that if we export more condensates that would cause a spike in prices at the pump,” said Citi commodity strategist Eric Lee.

However, there is a positive spin to the ongoing debate too. Any decision to lift restrictions on US crude exports would boost US production, rather lower gasoline prices, and support as many as 1 million additional jobs, energy consultancy IHS said in a report, adding that the elimination of crude export restrictions would benefit gross domestic product and government revenues too.

The study, ‘US Crude Oil Export Decision: Assessing the Impact of the Export Ban and Free Trade on the US Economy,’ estimated a resulting boost in US oil production would cut the US oil import bill by an average $67 billion per year.

Additional US crude oil production would help lower gasoline prices by an annual average of 8¢/gal, the study estimated. “The 1970s-era policy restricting crude oil exports — a vestige from a price controls system that ended in 1981 — is a remnant from another time,” said Daniel Yergin, IHS vice-chairman.

Despite stiff opposition, slowly and gradually, the US seem heading to a more open crude oil export regimen. And this would carry significant impact on the global energy markets too.

Published in Dawn, June 29th, 2014