The Independent Petroleum Association of America (IPAA) rejects claims made by the "Consumers and Refiners United for Domestic Energy" (CRUDE), an organization comprised of four domestic oil refineries, regarding two decisions made earlier this year by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). Those decisions determined that certain lease condensate processed through distillation towers was no longer crude oil as defined in the Export Administrations Regulations (EAR) administered by BIS.
In a letter sent to BIS dated September 4, 2014, the refineries asserted that BIS erred in its classification decisions and they called upon the BIS to retract them. The refineries' arguments are wrong on the merits. They merely are a thinly veiled effort to limit competition in ways that would discourage U.S. energy production.
CRUDE's depiction of the BIS actions inexplicably mischaracterizes the relevant facts of the decisions, while ignoring the broader benefits of the decisions to U.S. national security and the economy. Contrary to CRUDE's assertions, BIS did not create any "exceptions or exemptions" from the regulations that govern the export of crude oil. BIS simply applied the existing regulations to two specific factual situations – an action that is fully within BIS' authority and responsibility. In fact, BIS makes such commodity classification decisions regularly under the EAR.
Further, CRUDE acknowledges that the EAR explicitly do not prohibit exports of crude oil that has been "processed through a crude oil distillation tower." Nevertheless, CRUDE contends instead that no "field stabilization" process could involve such a process, because "the single purpose of stabilizing crudes and condensates is to remove very light hydrocarbons that boil at less than 200 degrees…."
But, the definition of "crude oil" in the EAR contains no "purpose" test, and CRUDE's summary characterization of stabilization processes is simply wrong. Stabilization techniques and processes vary significantly; some involve distillation towers, and some do not. Where a distillation tower is part of the stabilization process, the regulatory definition plainly permits a determination that the output products are not classified as crude oil.
More revealingly, CRUDE fails to note that there are no limitations on exports of refined petroleum products. Its members are free to export as much petroleum products, like processed condensate, they can produce. CRUDE's real complaint about the two BIS classification decisions thus is that potential suppliers have an alternative means to process crude oil and to sell the resulting products. This is only a problem for those who would misinterpret the regulations to suit their own commercial needs and to limit competition.
The most glaring omissions by these refiners, however, are facts showing the current realities surrounding U.S. energy security. According to the U.S. Energy Information Administration, the United States has now surpassed Saudi Arabia and Russia as the world’s largest producer of oil and natural gas. The EIA estimates that in just one year, U.S. crude oil output jumped by 1 million barrels per day— the largest rate of increase in U.S. history. U.S. oil production has increased to more than 10 percent of the world’s total, and by every measure, the United States is less reliant on foreign sources of energy than ever before. Further findings from the EIA indicate that total U.S. net imports of energy declined 19 percent from 2012 to 2013, hitting the lowest level in more than 20 years. Looking forward, U.S. crude oil production is still rising, and could more than double by the mid-2030s, resulting in near zero net US oil imports through 2040.
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