The year was 1975. Gerald Ford was president, and Wheel of
Fortune had just premiered on NBC.
It was also a time when four letters had come to dominate
world energy headlines: OPEC.
The Organization of the Petroleum Exporting Countries (OPEC)
was originally formed in 1960 by Iraq, Kuwait, Iran, Saudi Arabia
and Venezuela (nine other countries would later join). Its
mission: to coordinate the policies of the oil-producing
countries -- essentially making it the world's largest oil
The emergence of OPEC had thrown markets and energy users into
a panic -- particularly in the United States, where growing
reliance on foreign oil made OPEC-related restrictions an
especially frightening prospect.
Regulators moved quickly to do everything they could to secure
oil supplies, starting with the crude that was being produced in
One of the big results of these events was the U.S. crude
export ban: a moratorium on shipping unprocessed oil overseas...
we wanted to keep the precious commodity within our own
This became especially apparent in the 1986, when overall
American crude output began to plummet. Over the next 20 years
oil production sank by over 43% -- a loss of about 1.4 billion
barrels of yearly supply.
There was a sense that the party was over, and America would
never again see rising crude output within its borders.
It made sense to keep the export ban in place, in the name of
energy security. The country was going to need all the oil it
could get its hands on.
The thinking stayed that way for the better part of four
decades -- that is, until just recently. On June 24, we got the
first concrete indications that the oil export ban may be
loosening. The U.S. Commerce department granted de facto
permission for two prominent energy companies --
Pioneer Natural Resource (NYSE:
Enterprise Products Partners (NYSE:
-- to export crude hydrocarbons for the first time in 39
A move like this could open a slate of big implications for
producers and midstream firms -- and create some powerful new
opportunities for investors.
The Commerce ruling centered on a product called "condensate"
that both of these firms produce in spades. Condensate is a light
hydrocarbon (meaning it contains more carbon and hydrogen
molecules than other types of oil) that commonly comes as
by-product from natural gas wells in surging plays like the Eagle
Ford of Texas and the Marcellus of Pennsylvania.
Condensate is chemically a little different from what we
typically call "crude oil". But it can still be used as feed for
refineries to make fuel products, the same way normal oil
The ability to export this stuff could be a boon for
Take a look at the chart below. U.S. condensate production has
been on a tear lately -- rising nearly 60% since 2008, to a
current 274 million barrels yearly.
Prices for condensate in other parts of the world are
currently running several dollars per barrel higher than in the
U.S. For example, the condensate produced from the Eagle Ford
basin goes for $108, while the same product goes for as much as
$113 per barrel in Indonesia.
With that said, there will be challenges, such as shipping
costs and infrastructure. But the ultimate impact of last month's
changes may be more in shifting mindsets. If the ruling does open
the door to broader exports of crude oil, then the effects would
be a total game-changer for energy producers.
A further relaxing of export rules isn't guaranteed, however.
And it's important to bear in mind that the recent rule changes
have only been granted to two companies so far.
We'll see if other firms follow in the footsteps of Pioneer
and Enterprise and apply for export exemptions. I will keep
readers updated on these developments in my premium newsletter,
Junior Resource Advisor
. Rulings on any subsequent applications should give us a better
idea of whether the recent rule changes signal a limited
relaxation of standards -- or a full-out revolution in American
The media still hasn't discovered America's next major resource
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watch my latest presentation