(The opinions expressed here are those of the author, a
columnist for Reuters.)
By John Kemp
LONDON, July 29 Somewhere in an office at the
Bureau of Industry and Security (BIS) in Washington, D.C., a
mid-ranking government official is sitting down with a stack of
Coming up with a workable definition of "distillation" has
become urgent as U.S. companies seek permission to export
condensate, which has been stabilised and minimally distilled to
remove the most volatile components.
Earlier this year, the bureau confirmed that it would not
classify stabilised and minimally distilled condensate as crude
oil - clearing the way for the condensate to be sent abroad
under laws that permit the export of refined fuels but not raw
The findings were issued in response to letters from
Enterprise Products Partners and Pioneer Natural
Resources that asked how the bureau would classify
condensates that had undergone some basic processing at
facilities operated by the two companies.
Private letter rulings, as the advisory opinions are known,
do not create government policy or change the law. Instead they
interpret how existing law applies to the specific set of facts
outlined in the original request letters.
But the advisory opinions issued to Enterprise and Pioneer
sparked a rush from other would-be exporters to obtain rulings
on how their own stabilised and minimally processed condensates
would be classified.
The potential cascade of private letter rulings threatened a
wholesale reinterpretation and relaxation of the regulations, at
a time when the White House and Congress have yet to decide
whether to ease a four-decade ban on crude oil exports.
So now, the BIS has informed correspondents it will not be
issuing any more opinions until it has had time to consider its
position further and potentially develop comprehensive guidance,
as Reuters reported on Monday ("U.S. condensate oil export
requests put on hold for now" July 28).
But coming up with a rational and consistent approach that
can withstand judicial scrutiny is likely to prove difficult.
It would be more sensible for the administration to admit
defeat and lift the export ban entirely, but that decision would
have to come from the White House.
In simplified terms, the regulations require an export
license for crude oil but not refined products. The crucial
question is how to differentiate between products and crude. For
this purpose the government has adopted a distillation test:
"Crude oil is defined as a mixture of hydrocarbons that
existed in liquid phase in underground reservoirs and remains
liquid at atmospheric pressure after passing through
surface-separating facilities and which has not been processed
through a crude oil distillation tower," the regulations state
(15 CFR 754.2(a)).
The question then becomes how to define "distillation" and
"crude oil distillation tower".
Most dictionaries define distillation as a process that
involves boiling and then condensing a mixture to separate out
different components based on their differing boiling points.
The Webster dictionary calls distillation "the process of
first heating a mixture to separate the more volatile from the
less volatile parts, then cooling and condensing the resulting
vapour so as to produce a more nearly pure or refined
The principal components of the definition (evaporation,
condensation, separation by boiling point) are common to every
major English dictionary.
In an oil refinery, primary distillation occurs in a crude
distillation tower, also known as a crude distillation unit or
an atmospheric distillation unit.
Hot crude oil is fed into the distillation tower. The most
volatile components vaporise and rise up through a stack of
bubble trays, where they condense and can be drawn off.
Different components will condense on different trays,
depending on their precise boiling point, with liquids that boil
at lower temperatures condensing on trays higher up the tower.
While a typical distillation tower may contain up to 40 or
50 bubble trays, the off-take is usually grouped into some half
a dozen broad "cuts" to be sent for further processing.
The number of bubble trays and cuts in the crude
distillation tower is somewhat arbitrary and depends on
engineering and commercial convenience, rather than any special
chemical properties of the oil or the refined products.
The problem is that the condensates that Enterprise and
Pioneer have won permission to export and that other firms want
to export have not passed through an oil refinery's distillation
tower but through another type of processing unit called a
Condensates are effectively stabilised in much the same way
by heating a mixture of very light oils, running them through a
tower with a set of trays and separating them out depending on
differences in their boiling points.
Pioneer and Enterprise operate advanced, large-scale
stabilisation units that look a lot like small oil refineries.
Most fractionation units and condensate stabilisers are smaller
Condensate stabilisers and crude distillation towers are
obviously very different pieces of equipment - until the
differences have to be defined, and then it becomes much harder
to distinguish between them sensibly.
This probably explains why the Bureau of Industry and
Security originally ruled that the condensates exported by
Enterprise and Pioneer were no longer crude oil because they had
been through a distillation/stabilisation process.
But once it admitted that any separation through vaporizing
and condensing qualifies as distillation and readies raw oil for
export, it was not clear where the bureau could draw the line.
The floodgates for condensate exports would open, and in time
for minimally processed crude oil too. So the bureau is
rethinking its position.
At this point, if it wants to save the export regulations,
the bureau needs more sophisticated definitions of crude,
refined products and distillation that will also withstand
scrutiny in the U.S. courts.
Under the Administrative Procedure Act, the federal courts
can invalidate any regulation that is "arbitrary, capricious, an
abuse of discretion or otherwise not in accordance with law". (5
Courts generally take a dim view of agencies that try to
make the rules up as they go along. So the bureau needs to come
up with definitions that can be applied fairly and consistently
to all oil and condensate producers and refiners, otherwise its
definitions and decisions risk being struck down.
The bureau has already stated it believes the stabilisation
and processing employed by Enterprise and Pioneer meet the
standard required by the regulations, which complicates matters
The bureau now has three basic options:
(1) it can withdraw the opinions issued to Enterprise and
Pioneer and explain why they were wrong (risking a court
challenge from the two companies);
(2) apply the same logic to other companies in the same
circumstances (leading to a large volume of exports and
undermining the intention of the rules); or
(3) find a rational way to distinguish between the sort of
stabilising and processing that Enterprise and Pioneer are doing
and the stabilisation processes employed by other firms (which
will require some careful definitions).
More radically, the bureau could abandon the distillation
test altogether and put some other test in its place, or
supplement it with additional rules designed to allow some forms
of distillation but not others. However, any new test must still
pass the rationality and fairness requirements.
In the meantime, someone in the bureau is sitting with a big
pile of dictionaries and books on industrial chemistry trying to
work out a rational and legally defensible way forward.
Good luck to them.
(editing by Jane Baird)