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Export Controls on Crude Oil and Petroleum Products Outlined

Thursday, January 15, 2015
Sandler, Travis & Rosenberg Trade Report

The Bureau of Industry and Security posted to its Web site recently the following information regarding U.S. controls on exports of crude oil and petroleum products.

Crude oil is defined in the Section 754.2(a) of the EAR 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. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonate, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded.”

Crude oil is subject to short supply export controls and a license is required to export crude oil to all destinations, including Canada. The Export Administration Regulations provide for the approval of licenses for exports (1) of crude oil from Alaska's Cook Inlet, (2) of oil to Canada for consumption or use therein, (3) in connection with refining or exchange of strategic petroleum reserve oil, (4) of certain California heavy crude oil, (5) consistent with certain international agreements, (6) consistent with presidential findings and (7) of foreign-origin crude oil not commingled with domestic crude. Exports of crude oil in other instances are generally banned, but BIS will consider applications on a case-by-case basis and generally will approve them if the proposed exports are consistent with the national interest and the purposes of the Energy Policy and Conservation Act.

Petroleum products are liquid hydrocarbons that have been processed through a crude oil distillation tower. There are a number of factors BIS considers in reviewing commodity classification applications to determine whether a product meets this criterion, such as whether the distillation process materially transforms the crude oil into liquid streams that are chemically distinct from the crude oil input and the change in percentage of different types of hydrocarbons between the input and output of the process. However, these factors are not exhaustive, and BIS will look at the particular circumstances of each application to determine whether the output of a process can be considered a petroleum product.

Most petroleum products are classified as EAR99 and may therefore be exported to most of the world without a license; the exception is exports to embargoed destinations. However, if the petroleum product was produced or derived from the Naval Petroleum Reserve, it is covered by ECCN 1C982 and is subject to the licensing requirements for that ECCN described in Section 754.3 of the EAR.

Foreign-origin crude oil can be exported (with a valid license) as long as it is not commingled with domestic crude oil. While the EAR do not specify any de minimis amount of U.S.-origin oil that can be commingled with the foreign oil, BIS understands that a minimal amount of mixing may occur due to incidental contact in pipelines and/or storage tanks when foreign and U.S. origin oil is sequentially transported or stored in the same pipeline or tank. Those applying for export licenses for foreign-origin crude should include in their application an explanation of the precautions they are taking to ensure that U.S. crude oil is not mixed with foreign-origin crude.

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