American Oil and Gas Reporter - February 2015 - 50

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50 THE AMERICAN OIL & GAS REPORTER

Commerce Department Unveils
Guidance On Petroleum Exports
WASHINGTON-The federal government has issued guidance for exporting
processed lease condensate, saying petroleum products undergoing one or more
processing steps will be considered suitable
for exporting without a license. The instructions come in the form of questions
and answers posted on the Commerce
Department's Bureau of Industry and Security's website.
The guidelines released Dec. 30 by
BIS follow private rulings issued earlier
in 2014 to Pioneer Natural Resources
Co. and Enterprise Product Partners LP
that allowed them to ship ultralight oil to
foreign buyers after the hydrocarbons
underwent minimal processing (AOGR,
July 2014, pg. 42).
One of the bureau's FAQ entries answers how crude oil owners determine
how much processing in a distillation
tower is needed to qualify the output as a
petroleum product suitable for export
without a BIS license. The agency says
to meet that threshold, the crude oil must
undergo material processing in a tower,
not mere de minimis processing. BIS
says that processes using pressure reduction alone to separate vapors from liquids,
or pressure changes at a uniform temperature, do not qualify as processing through
a crude oil distillation tower.
According to BIS, when certifying
processes for export, the agency also will
consider:
* Whether the distillation process has
a material impact on the crude oil by
using heat and condensation to transform
it into liquid streams that are chemically
distinct from the crude oil input;
* If API gravity changes between the
input and output of the process;
* How much the percentage of different types of hydrocarbons changes between input and output;
* Whether the streams resulting from
distillation have purposes other than allowing the product to be classified as exportable petroleum products, such as its
use as a petrochemical feedstock, diluent
or gasoline blend stock;
* Whether the distillation process
uses temperature gradients and relies on
internal structures such as trays or packing,
and differentiated output streams; and
* Whether the distillation utilizes
towers with more mechanical complexity
and heat, higher residence time, internal
structures that promote condensation, and
consistent quality liquid streams than
equipment used to separate vapors and

liquids for the transportation sector.
The BIS guidance also describes processes that would not allow hydrocarbons to
be exported. Those procedures include
using pressure reduction alone to separate
vapors from liquid or changing pressures
at uniform temperatures, such as processing
crude in flash drums with heater treaters
or separators. The agency says products
processed through such equipment retain
their crude oil classification.
Lease condensate, including production
from tar sands, gilsonite and oil shale,
remains classified as crude oil under the
Export Administration Regulations (EAR).
However, BIS points out that lease condensate that has been processed through
a distillation tower is not crude oil but a
petroleum product, and therefore subject
to few export restrictions.
"These factors are not intended to be
categorical or exhaustive. In reviewing
commodity classification applications,
BIS will look at the particular circumstances of each application to determine
whether the output of a process can be
considered a petroleum product under
the current regulatory definition," the
agency says.
Insight
Leah Rudnicki, a partner with legal
firm Reed Smith, says the BIS-issued
guidance provides much-needed insight
into how the agency interprets its regulations, especially its definition of crude oil.
However, Rudnicki points out, "While
BIS has provided additional tools for
self-classification, exporters must take
great care, utilizing the advice of counsel,
to determine on a case-by-case basis
whether the output of a given distillation
process can be considered a petroleum
product under the regulatory definition.
If a misclassification leads to an unauthorized export, exporters face serious
civil and criminal penalties."
Exporters are not the only parties exposed to possible penalties, Rudnicki says.
EAR, which governs crude oil exports,
makes clear that no one may buy or transport a product with knowledge that it is
being exported in violation of the act. In
addition, she reports the act prohibits
parties from acting in such a way that is
construed to be a solicitation, attempt or
action to "aid, abet, counsel, command,
induce, procure or permit" a violation.
The BIS guidance is available at
http://www.bis.doc.gov/index.php/policyguidance/faqs.
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American Oil and Gas Reporter - February 2015

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