Who Wins As Energy Policy Evolves?

energy-policyA couple of weeks ago the Obama administration took a first step toward opening up U.S. oil exports. The proposal is specific to oil condensate, which would be exported from Texas.
And it’s a big deal. This is an incremental step toward lifting a 40-year-old ban on oil exports.
The Commerce Department has sidestepped tackling a change in law by only allowing exports of oil condensate, a lighter version of oil with a high naphtha content that many U.S. refineries aren’t equipped to refine.
Condensate production is rising rapidly as shale oil plays, particularly the Eagle Ford and the Utica shale, tend to have a lot of it. Industry analysts expect condensate production to rise by as much as 160% by the end of this decade.
There is a lot to discuss on this matter – including winners, losers and global energy policy.
At the moment the winners look to be U.S. gas consumers, like you and me, and U.S. explorers and producers (E&P) that have property with condensate.
Consumers win because exporting any U.S. oil should help keep global oil (and therefore gas) prices from running away. U.S. E&P companies should win because there has been a lack of refining capacity in the U.S. for oil condensate and the market is oversupplied as is. This proposal could boost revenues as E&Ps have a global market to sell condensate into.
One of the companies poised to benefit is Pioneer Natural Resources (NYSE:PXD).  The company is held in our Top Stock Insights portfolio, where we have a 20% gain on the stock.  Pioneer is one of only two companies authorized to export at the moment; the other being Enterprise Product Partners (NYSE:EPD).
The losers are a little less clear. In some regards, U.S. refiners may stand to lose. But it’s a complicated analysis to figure out if that’s true or not.
On the one hand, exporting this form of oil may give U.S. refiners a pass on building expensive new refining capacity since the oil can be refined overseas, where more refining infrastructure exists. On the other hand, if refiners knew the ban would remain in place, they could build capacity to meet supply. Not knowing what the future of export policy will be, these guys are stuck in the middle.
Also, some U.S. refiners have said they have room to refine light crude, if they can get their hands on it. The issue appears to be getting it from Texas to places like Louisiana. So the impact on refiners is still a little murky.
After an early look at the data it appears to me that shipping oil condensate out of the U.S. gives E&P companies the runway to grow production without worrying that they are spending money to build inventory that will sit still for months, if not years. And all things being equal, that’s a good thing for them.
I don’t have significant exposure to refiners in my portfolio, or in the portfolios of my two advisory services, Top Stock Insights and 100% Letter. So regardless of how this will affect refiners, at the moment I like the sounds of the deal.
This incremental step toward allowing oil exports shows that energy policy here in the U.S. is likely to change over the coming years.  We’ll keep following this story since it relates not only to our portfolios, but also, in many ways, to the broader health of the U.S. economy and U.S. consumer.

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