IPAA Statement on Claims Made Against Crude Oil

Exports

The Independent Petroleum Association of America (IPAA) rejects claims made by the
Consumers and Reners United for Domestic Energy (CRUDE), an organization
comprised of four domestic oil reneries, regarding two decisions made earlier this year
by the U.S. Department of Commerces Bureau of Industry and Security (BIS). Those
decisions determined that certain lease condensate processed through distillation
towers was no longer crude oil as dened in the Export Administrations Regulations
(EAR) administered by BIS.

In a letter sent to BIS dated September 4, 2014, the reneries asserted that BIS erred
in its classication decisions and they called upon the BIS to retract them. The
reneries 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.

CRUDEs depiction of the BIS actions inexplicably mischaracterizes the relevant facts
of the decisions, while ignoring the broader benets of the decisions to U.S. national
security and the economy. Contrary to CRUDEs 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 specic factual situations an action that
is fully within BIS authority and responsibility. In fact, BIS makes such commodity
classication 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 eld 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 denition of crude oil in the EAR contains no purpose test, and CRUDEs
summary characterization of stabilization processes is simply wrong. Stabilization
techniques and processes vary signicantly; some involve distillation towers, and some
do not. Where a distillation tower is part of the stabilization process, the regulatory
denition plainly permits a determination that the output products are not classied as
crude oil.

More revealingly, CRUDE fails to note that there are no limitations on exports of rened
petroleum products. Its members are free to export as much petroleum products, like
processed condensate, they can produce. CRUDEs real complaint about the two BIS
classication 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 reners, 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
worlds 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 worlds
total, and by every measure, the United States is less reliant on foreign sources of
energy than ever before. Further ndings 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.

For these and other reasons, leading economists, energy policy experts, and major
newspaper editorial boards agree that the current crude oil export limitations should be
repealed. This is a policy step that Congress and the Administration should take. The
BIS classication decisions do not affect current law or policy. Ultimately, the motivation
behind CRUDEs letter to BIS should be seen for what it is a bald attempt to position
its members to take advantage of captive suppliers.

Beyond being replete with mischaracterizations and omissions of relevant facts, the
reners appear to be oblivious to the current realities surrounding U.S. energy security.
Its sad that an organization that purports to stand up for consumers would distort the
plain language of regulations to limit competition.

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IPAA represents the companies that drill 95 percent of the nations oil and natural gas
wells. For more information, visit www.ipaa.org.