The Obama administration cleared the way for the first exports of unrefined American oil in nearly four decades, allowing energy companies to start chipping away at the longtime ban on selling U.S. oil abroad.
In separate rulings that haven't been announced, the Commerce Department gave Pioneer Natural Resources Co. and Enterprise Products Partners LP permission to ship a type of ultralight oil known as condensate to foreign buyers. The buyers could turn the oil into gasoline, jet fuel and diesel.
The shipments could begin as soon as August and are likely to be small, people familiar with the matter said. It isn't clear how much oil the two companies are allowed to export under the rulings, which were issued since the start of this year. The Commerce Department's Bureau of Industry and Security approved the moves using a process known as a private ruling.
For now, the rulings apply narrowly to the two companies, which said they sought permission to export processed condensate from south Texas' Eagle Ford Shale formation. The government's approval is likely to encourage similar requests from other companies, and the Commerce Department is working on industrywide guidelines that could make it even easier for companies to sell U.S. oil abroad.
In a statement Tuesday night, the Commerce Department said there has been "no change in policy on crude oil exports."
Under rules imposed after the Arab oil embargo of the 1970s, U.S. companies can export refined fuel such as gasoline and diesel but not oil itself except in limited circumstances that require a special license. The embargo essentially excludes Canada, where U.S. oil can flow with a special permit.
Lawmakers enacted the ban after Arab countries declared an embargo on shipments to Western nations because of their support for Israel in the Yom Kippur War. The embargo caused oil prices to quadruple and led to rationing at gas stations across the U.S.
But as drilling companies tap shale formations across the U.S., so much oil is flooding out of the ground that prices for ultralight oil have fallen as much as $10 or more below the price of traditional crude. As a result, producers have lobbied aggressively to relax the export ban, saying they could get a higher price from foreign buyers than from U.S. refiners.
For months, top Obama administration officials have signaled willingness to relax the export restrictions. The softened stance is likely to stir up opposition in Congress, where some lawmakers insist that Americans would benefit from lower fuel prices if the government maintains the longtime export ban.
The shift could be even more controversial because oil prices are stuck above $100 a barrel amid instability in Iraq, Libya and Ukraine. The benchmark U.S. oil price rose on the news, nearing its high for the year, as traders mulled the possibility of supplies leaving the country.
On Tuesday, Americans paid an average of $3.68 a gallon for gasoline at the retail pump, according to motor club AAA.
The private rulings by the Commerce Department define some ultralight oil as fuel after it has been minimally processed, making the oil eligible for sale outside the U.S. The Brookings Institution estimates that as much as 700,000 barrels of ultralight oil per day could be exported starting next year.
Eventually, the exemption could grow to a substantial portion of the three million barrels a day of oil that energy companies are pumping from shale, industry experts say. From 2011 to 2013, U.S. oil output soared by 1.8 million barrels a day, with 96% of new production in the form of light or ultralight oil, according to the Energy Information Administration.
Pioneer Chairman and Chief Executive Scott Sheffield has been one of the most outspoken advocates for oil exports. The Irving, Texas, company pumps most of its oil in Texas, including a joint venture with India's Reliance Industries Ltd. Mr. Sheffield has warned that refiners along the Gulf Coast could become oversaturated with too much oil from shale.
Enterprise, based in Houston, is an oil and gas logistics company that operates pipelines and storage terminals, as well as processing equipment for natural gas, condensate and refined fuels.
With few exceptions, U.S. crude oil gets transformed into fuel in plants scattered from California to New Jersey. Canada gets some U.S. oil that it can refine north of the border, but much of that gasoline and diesel flows back south to service stations in Michigan and Minnesota.
Under the private rulings, condensate can qualify as a refined product suitable for export so long as the liquid is stabilized and distilled, according to officials and industry executives.
Stabilization, a process that heats up oil to boil off some of the most volatile gases, has long been an early step in energy production, transportation and refining. Equipment to stabilize oil is common in energy states like Texas. Distillation is an increased step, industry sources said, but far short of refining or turning condensate into finished fuels.
If the volume of minimally processed condensate exports reaches a large scale, it could undermine investments by several companies in refineries and mini-refineries known as splitters that were made based on the companies' previous understanding of the law, said Rusty Braziel, an energy consultant.
Nearly 20 refining projects with capacity of more than 900,000 barrels a day have been proposed and are in various stages of development, according to Credit Suisse Group. This fall, Kinder Morgan Inc. plans to start a $360 million condensate splitter near the Houston Ship Channel that is supported by long-term contracts with BP PLC.
Earlier this year, the chief executive of Continental Resources Inc., the biggest driller in North Dakota, said he expected a wholesale lifting of the export ban so all types of U.S. crude could be sold internationally.
"They want a whole-hog liberalization of exports," said Kevin Book, managing director at political advisory firm ClearView Energy Partners LLC. "Condensate is kind of a baby step in the eyes of some of the producers."
Alison Sider and Nicole Friedman contributed to this article.
Write to Christian Berthelsen at email@example.com and Lynn Cook at firstname.lastname@example.org
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