Texas Condensate to Be Exported Without Prior Approval, Testing Federal Limits

On November 5, the Wall Street Journal reported that Australian-based BHP Billiton Ltd. would begin exports from the United States of lightly refined natural gas condensates produced in the United States.  In contrast to previous efforts to export natural gas condensates, BHP Billiton has elected not to seek approval from the U.S. Department of Commerce prior to entering into a purchase agreement with the Swiss trading firm Vitol S.A. for the condensate.  In June, two U.S. energy companies received private letter rulings from the Department of Commerce allowing for the export of lightly refined condensate, and since the date of those rulings nearly 1.6M barrels of the product have been exported.  In the resulting controversy surrounding whether the rulings constituted a new federal government position regarding crude oil exports, the Department of Commerce suggested that there was no change in position.  The government reasoned that the condensate, however lightly refined, was nevertheless a refined product, and thus not subject to export restrictions.

BHP Billiton appears to be taking this position to its next logical conclusion and is relying on the concept that export of a refined product needs no prior governmental approval.  We suspect that many in the industry will be watching with keen interest for a reaction to the news of BHP Billiton’s export deal.  If the federal government elects to turn an indifferent eye toward the transaction and tacitly or overtly acknowledges that private letter rulings are not required to begin exports, it is likely that other U.S. producers, taking advantage of a dramatically reduced regulatory overhead, will be eager to fill the holds of tankers destined for Asian markets hungry for a secondary source of oil to lessen their reliance on Middle Eastern suppliers.