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 cartel.

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 the U.S.

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 borders.

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: PXD) and Enterprise Products Partners (NYSE: EPD) — to export crude hydrocarbons for the first time in 39 years. 

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 can. 

The ability to export this stuff could be a boon for producers… 

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.

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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 energy policy. 

Good investing, 

Dave Forest

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