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Analysis: Game changer or symbolic move - U.S. debates condensate exports

(Reuters) - Facing a growing domestic oversupply, a U.S. crude oil producer and a pipeline company waged a quiet crusade in Washington earlier this year aimed at easing a decades-long ban on crude exports.

That effort has in part paid off as the Department of Commerce gave both the go-ahead to export an ultra-light oil known as condensate, if it has been minimally refined.

Any company interested in exporting condensate now has a definition for what is exportable.

The approvals effectively upended decades-old guidelines that condensate had to run through a refinery or a splitter before it could be shipped abroad. The Commerce Department's action could unleash as much as $6 billion a year of condensate onto the global market, analysts say.

That is a fraction of the country's daily crude output, but for Pioneer Natural Resources Co and Enterprise Products Partners LP , the benefits are clear: new homes abroad for the product will revive lackluster prices and help deal with the oversupply. Both have operations in the Eagle Ford shale in Texas, which is rich in condensate.

The news rippled across markets, driving U.S. oil up $1 a barrel, sending the value of Enterprise and Pioneer soaring, and hammering shares of major U.S. refiners such as Valero Energy Corp. due to the potential for higher costs. Most refineries on the U.S. Gulf Coast are built to run heavier crudes from Canada or Venezuela.

Even so, the long-term impact is unclear. Some see it as the first critical step toward loosening a decades-long ban on crude exports while others viewed it as a largely symbolic move that merely clarified laws that were already on the books.

"This permit cracks the door open, but it's probably still in its baby steps," said Pearce Hammond, an analyst at Simmons & Co International.

While the White House has said there has been no change in policy for crude oil exports, the approvals fueled a debate over what might be feasible under the existing 1975 Energy Policy and Conservation Act as the U.S. energy boom continues.

The topic has emerged as one of the most contentious energy policy issues this year, and the White House is unlikely to drop the crude export ban ahead of midterm elections.

HISTORIC SHIFT

Condensate exports, for some a historic shift for the U.S. oil market, could reach 100,000 to 300,000 barrels per day by the end of the year, Citigroup said in a recent research note. That volume could double in 2015.

As long as the crude has been through a stabilizer, a light form of processing, it is now deemed sufficiently processed to qualify as a refined product and therefore eligible for export without a license, the government told Pioneer and Enterprise.

Other letters approving exports of stabilized content are expected, according to a refining executive, who declined to be named because of company policy.

"What it means is that the floodgates of exports will be opened now," said Citigroup analyst Ed Morse.

Latin American oil companies are already lined up and waiting for the exports, according to one market participant.

In the United States, the export clarification is welcome news for a niche group of companies that already operate or are building stabilizing capacity on the Gulf Coast.

"This will change the whole condensate marketing landscape," said Josh Weber, senior vice president of commercial and business development for Howard Energy Partners, a Texas company that is building a 10,000 barrels-per-day (bpd) stabilizer in the condensate-heavy Eagle Ford shale near Corpus Christi, Texas.

CLASSIFYING CONDENSATE

Industry executives said the government's clarification - that minimal processing clears condensate for export - is likely to raise condensate prices and create a stronger market for what has been a distressed type of crude that lacked healthy demand.

A distillation tower attached to a stabilizer can remove some of the most volatile components in condensate, including butane, ethane, propane and pentanes, called the C5s. In turn, it reduces the vapor pressure. After going through the process, the liquid is still considered condensate.

Historically, condensate stabilizers were used to meet pipeline specifications.

ANOTHER FALSE ALARM

Some others were more hesitant about declaring the move a game changer, because the possible volume for export is low and the costs of investment in stabilizers may be high.

"You might get a lot of investment in the field in splitters and separators that may be lost at some point in the future and stranded when you actually go to a (fuller) export route," said Frank Verrastro, energy and geopolitics expert at the Center for Strategic and International studies.

Even so, by starting to open up the market, Pioneer's creativity showed that other unforeseen opportunities may exist, said Morgan Stanley analysts.

"Pioneer's success in arguing that a lightly processed condensate is a refined product shows the administration is being thoughtful about the crude export issue."

(Reporting By Catherine Ngai, Jessica Resnick-Ault, Kristen Hays, Timothy Gardner, Josh Schneyer, Anna Sussman, Marianna Parraga and Edward McAllister; Writing by Jessica Resnick-Ault; Editing by Josephine Mason and Steve Orlofsky)

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