[Federal Register Volume 60, Number 58 (Monday, March 27, 1995)]
[Rules and Regulations]
[Pages 15669-15673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7525]
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DEPARTMENT OF COMMERCE
Bureau of Export Administration
15 CFR Part 777
[Docket No. 930653-4299]
RIN 0694-AA70
Exports of Certain California Crude Oil
AGENCY: Bureau of Export Administration, Commerce.
ACTION: Final rule.
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SUMMARY: The Bureau of Export Administration (BXA) is amending the
short supply provisions of the Export Administration Regulations (EAR)
by revising the restrictions on exports of crude oil produced in the
lower 48 states to allow exports, under individual validated licenses,
of up to 25,000 barrels per day (MB/D) of California heavy crude oil
having a gravity of 20.0 degrees API or lower.
This final rule revises the licensing requirements and procedures
that apply to exports of California heavy crude oil by removing a
number of significant restrictions, e.g., the prohibition against
transporting crude oil by pipeline over rights-of-way granted pursuant
to the Mineral Leasing Act of 1920 and the requirement that any export
of crude oil must be offset by importing an equal or greater volume of
crude oil of equal or higher quality.
In order to minimize procedural delays in licensing exports of
California heavy crude oil, BXA's Office of Chemical and Biological
Controls and Treaty Compliance (CBTC) will issue licenses on a first-
come, first-served, basis. Based on comments received on the March 24,
1994, proposed rule, this rule allows CBTC to issue licenses contingent
upon the exporter submitting, prior to any export under a license,
documentation showing that the exporter has title to the oil (or a
contract to purchase the oil) and a contract to export the oil. This
change in documentation requirements should provide exporters with
greater flexibility in completing small cargo transactions on the spot
market. Such transactions are likely to account for the bulk of
California heavy crude oil exports.
EFFECTIVE DATE: March 27, 1995.
[[Page 15670]] FOR FURTHER INFORMATION CONTACT: Bernard Kritzer, Office
of Chemical and Biological Controls and Treaty Compliance (CBTC),
Bureau of Export Administration, Telephone: (202) 482-0894.
SUPPLEMENTARY INFORMATION:
Background
Section 777.6(d)(1) of the Export Administration Regulations (EAR)
restricts exports of crude petroleum, including reconstituted crude
petroleum, tar sands, and crude shale oil. This rule amends
Sec. 777.6(d)(1) to permit exports of certain California crude oil
pursuant to a Presidential memorandum of October 22, 1992,1 in
which the President determined that exports of California heavy crude
oil having a gravity of 20.0 degrees API or lower were in the national
interest. Prior to authorizing the export of this California crude oil,
the President made certain findings and determinations under the
following statutes:
\1\The President's memorandum of October 22, 1992, was published
in the Federal Register Vol. 57, No. 226, November 23, 1992, p.
54895.
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(1) Section 103 of the Energy Policy and Conservation Act (42
U.S.C. 6212(b));
(2) Section 28(u) of the Mineral Leasing Act, as amended by the
Trans-Alaska Pipeline Authorization Act of 1973 (30 U.S.C. 185(u)); and
(3) The provisions of the Export Administration Act of 1979 (EAA),
as amended, to the extent permitted with law, continued in effect after
its August 20, 1994, expiration through the President's invocation of
the International Emergency Economic Powers Act in Executive Order
12924 of August 19, 1994.
The President made findings that exports of California heavy crude
oil having a gravity of 20.0 degrees API or lower:
(1) Are in accordance with the provisions of the Export
Administration Act of 1979, as amended;
(2) Are consistent with the purpose of the Energy Policy and
Conservation Act; and
(3) Will not diminish the total quality or quantity of petroleum
available to the United States.
Based on the above findings, the President authorized the Secretary
of Commerce to modify the existing restrictions on the export of crude
oil produced in the lower 48 states to allow initially the export of an
average quantity of 25 MB/D of California heavy crude oil having a
gravity of 20.0 degrees API or lower.
The President also directed the Secretary of Energy, in
consultation with the Secretaries of Commerce, the Interior,
Transportation, and other interested agencies, to conduct periodic
reviews of such exports in light of then-existing market circumstances.
In addition, the President authorized the Secretary of Energy to
recommend to the Secretary of Commerce, based on the results of these
periodic reviews, what, if any, adjustments should be made in the
quantity of California heavy crude oil that may be authorized for
export (i.e., adjustments to the currently authorized level of 25 MB/
D).
Publication of Proposed Rule (March 24, 1994)
In response to the President's decision, the Department published a
proposed rule and request for public comments in the Federal Register
on March 24, 1994 (59 FR 13900). The proposed rule would have allowed
the CBTC to authorize exports of up to 25 MB/D of California heavy
crude oil having a gravity of 20.0 degrees API or lower. The March 24
rule proposed that CBTC would grant export licenses on a first-come,
first-served, basis with the quantity authorized on any one license not
to exceed 25 percent (2.28 million barrels) of the annual authorized
volume (i.e., 9.125 million barrels). The proposed rule would have
allowed CBTC to approve only one application per month from each
company and its affiliates, as long as applications from non-affiliated
companies were still pending. In addition, the validity period for
licenses would have been 90 days; and CBTC would have returned to the
available authorized export quota any volumes that had been licensed
but not exported during the 90-day validity period, except that no
unshipped volumes would have been carried over more than 30 days into a
new calendar year. Any unlicensed portion of the quota would have been
carried forward by CBTC from month to month, except that no volumes
would have been carried forward more than 30 days into a new calendar
year. The proposed rule would have allowed exporters a 10-percent
tolerance on the unshipped balance based on the number of barrels
authorized on the license, as well as a 25-percent tolerance on the
total dollar value of the license.
Applicants would have been subject to a number of documentation
requirements under the proposed rule: (1) Documentation showing that
the applicant has or will acquire title to the quantity of barrels
stated in the application; (2) a contract to export the quantity of
barrels stated in the application; (3) documentation showing that the
crude oil has a gravity of 20.0 degrees API or lower and was produced
within the state of California; and (4) an affidavit that the crude oil
was not produced or derived from a U.S. Naval Petroleum Reserve and was
not produced from the submerged lands of the U.S. Outer Continental
Shelf.
Finally, the proposed rule solicited public comments on three
possible license allocation schemes: (1) The first-come, first-served
licensing scheme described in the proposed rule; (2) a prorationing
scheme similar to the one used for exports of Alaskan North Slope crude
oil to Canada; and (3) a licensing scheme employing pre-qualification
with export nominations.
Public Comments on the Proposed Rule
The Bureau of Export Administration (BXA) received seven comments
on the March 24, 1994, proposed rule. One commenter opposed allowing
exports of up to 25 MB/D of California heavy crude oil, asserting that
this change would provide little or no economic benefits for California
crude oil producers and would likely result in price increases in the
domestic fuel market. Two commenters had no objections to allowing the
export of an average of 25 MB/D of California heavy crude oil, but
urged the Department not to increase this level without a formal public
rulemaking.
One commenter felt that the 25 MB/D average was quite small
relative to the potential marketable oil and suggested that state and
local governmental entities should be exempted from this limit. This
commenter expressed no preference concerning the method by which
licenses would be allocated and noted that the rule probably would not
have a significant impact on inland producers because many of them
lacked access to heated oil pipelines to transport crude oil to export
terminals.
Two commenters urged BXA to drop the proposed requirement that
applicants provide documentation showing the existence of a contract to
export California heavy crude oil, because this requirement would make
it difficult for companies to complete small cargo transactions on the
spot market. One alternative that was suggested would permit applicants
to submit one application per quarter, for cargoes not exceeding
500,000 barrels, to be supported by nonbinding letters of intent,
instead of a signed contract.
Several alternative licensing regimes were suggested. One commenter
suggested two alternative regimes. Under the first alternative,
applicants would be allowed to identify potential [[Page 15671]] supply
sources and end-users, subject to approval by BXA, and would then be
allowed to make shipments involving these approved parties, providing
proof of compliance and performance to BXA after each shipment. The
second alternative would involve the issuance of two types of licenses:
(1) short-term (30- to 90-day) licenses not exceeding 500,000 barrels,
with unused portions returned to the available quota, and (2) longer
term (6- to 12-month) licenses of 1 to 2 million barrels, with up to
half the amount returned to the available quota if no shipment is made
within 3 months. This commenter also urged that applicants be allowed
to apply for licenses several months in advance of the effective date.
Finally, the commenter suggested that licensees who fail to make any
shipments under their licenses be given a lower priority when filing
applications for subsequent licenses.
Another commenter suggested an alternative licensing regime that
would involve a prorationing mechanism with a validity period of not
less than 1 year and a minimum quantity of 500,000 barrels. This
commenter also favored eliminating the one application per month
limitation and removing the 25 MB/D cap on exports.
Finally, one commenter urged the Commerce Department to work toward
eliminating export restrictions on California heavy crude oil produced
from the submerged lands of the U.S. Outer Continental Shelf and, as
part of this action, increase the proposed gravity limit from 20
degrees API to 22 degrees API.
Changes Made by This Final Rule
The Department reviewed the public comments on the March 24, 1994,
proposed rule and decided to retain, for the most part, the licensing
regime contained in that rule (i.e., first-come, first served).
However, the Department recognizes that a number of concerns were
raised in the public comments on the proposed rule and, where
practical, has made changes in this final rule to address these
concerns.
This final rule makes certain significant changes in the
documentation requirements for license applications to export
California heavy crude oil. These changes are based on the Department's
review of the public comments on the proposed rule, its consultations
with industry representatives familiar with the California heavy crude
oil export market, and its review of certain in-house data on actual
shipments of California heavy crude oil under validated export
licenses. The documentation requirements in the proposed rule specified
that each application must be accompanied by: (1) a contract or bill of
sale, showing title to the crude oil, and (2) a contract to export the
crude oil. Several commenters felt that this requirement would make it
difficult for companies to complete small cargo transactions on the
spot market, noting that the timeframe for completing small cargo
transactions can be very short and that a limited window of opportunity
could be missed if proof of a contract had to be obtained before an
export license could be issued. These commenters also noted that the
negative effects of the prior proof of contract requirement could be
quite significant because the bulk of California heavy crude oil
exports are spot market transactions.
Because of the unique characteristics of the California heavy crude
oil export market (most sales consist of small spot market
transactions), the Department decided to modify the proof of contract
requirement. This final rule requires that each application be
accompanied by documentary evidence of an order as described in
Sec. 772.6(a)(2), such as a letter of intent. Although this final rule
does not require proof of a contract at the time an application is
submitted, all licenses to export California heavy crude oil will be
subject to the condition that the licensee submit to the CBTC, prior to
any export under the license, documentation proving that the licensee
has: (1) title to the quantity of barrels stated in the application and
(2) a contract to export the quantity stated on the application. This
change will provide applicants with greater flexibility to engage in
spot market transactions. Applicants will be able to obtain export
licenses more quickly, since they will not have to wait until they have
a firm contract to submit their applications. They also will have
additional time in which to obtain proof of a contract, since they are
only required to submit such proof to CBTC at some point prior to the
time of export.
To encourage applicants to apply for a validated license only when
they have a real opportunity to make an export sale, this final rule
requires CBTC to consider the following factors when determining what
action should be taken on individual applications:
(1) The number of validated licenses to export California heavy
crude oil that have been issued to the applicant or its affiliates
during the current calendar year;
(2) The number of applications pending in CBTC that have been
submitted by applicants who have not been issued validated licenses to
export California heavy crude oil during the current calendar year;
and,
(3) The percentage of California heavy crude oil authorized under
export licenses previously issued to the applicant that has actually
been exported by the applicant.
Another significant change in documentation requirements involves
the affidavit requirement contained in Sec. 777.6(d)(1)(xii) of the
proposed rule. This requirement has been replaced in the final rule by
a certification requirement, i.e., the applicant is required to certify
that: (1) the commodity has a gravity of 20.0 degrees API or lower; (2)
the commodity is produced in the state of California; (3) the commodity
is not produced or derived from a U.S. Naval Petroleum Reserve; and (4)
the commodity is not produced from the submerged lands of the U.S.
Outer Continental Shelf.
The Department decided to retain the first-come, first-served,
mechanism that was proposed in the March 24, 1994, rule because it
provides a greater degree of flexibility and administrative simplicity
than the prorationing and pre-qualification licensing alternatives that
also were described in the proposed rule. Under the first-come, first-
served licensing regime adopted in this final rule, CBTC will accept
only one application per month from each company and its affiliates
(regardless of whether or not applications from non-affiliated
companies are pending) for a total quantity not to exceed 25 percent
(2.28 million barrels) of the annual (9.125 million barrels) authorized
volume of California heavy crude oil. CBTC will issue licenses in the
order in which it receives applications, with all licenses having the
same validity period, i.e., 90 calendar days. The Department considered
establishing a longer validity period, but felt that the 90-day term
provided the best compromise between the needs of spot market
applicants and applicants anticipating larger volume transactions
covering a longer term. Since licensees are permitted to wait until
immediately prior to making shipments under their licenses before
providing CBTC with documentation showing proof of title and a contract
to export, the Department felt that the 90-day license term was
necessary to ensure that no applicant would tie up large volumes of
California heavy crude oil for a significant period of time (e.g., for
six months to a year), without having received a firm contract offer,
thereby denying commercial opportunities to other applicants.
This final rule also implements the provisions of the proposed rule
concerning: (1) volumes that have not [[Page 15672]] been licensed for
export and (2) licensed volumes that have not been exported prior to
the expiration date of the license. CBTC will carry forward any portion
of the 25,000 barrel per day quota that has not been licensed and will
return to the available authorized quota any portion that has been
licensed, but not shipped, within the 90-day validity period of the
license, except that these volumes will not be carried over more than
30 days into a new calendar year. This approach will ensure that the
total volume available for export in any one year does not
significantly exceed the annual (9.125 million barrels) authorized
volume of California heavy crude oil. If market conditions dictate that
an adjustment should be made in the annual authorized volume, the
Secretary of Energy is authorized to recommend that the Secretary of
Commerce make the necessary adjustment.
Consistent with the March 24, 1994, proposed rule, this final rule
allows licensees to combine authorized quantities into one or more
shipments, provided that the validity period of none of the affected
licenses has expired. In addition, this rule retains the shipping
tolerances set forth in the proposed rule, i.e., a 10-percent tolerance
on the unshipped balance (based on the number of barrels authorized on
the license) and a 25-percent tolerance on the total dollar value of
the license. This final rule also prohibits licensees from transferring
their licenses to other parties without prior written authorization
from CBTC, in accordance with Sec. 772.13.
The Department considered the effect on the environment of exports
of California heavy crude oil in its 1989 ``Report to Congress on U.S.
Crude Oil Exports'' which recommended the liberalization of export
restrictions resulting in the 1992 Presidential determination. The
Department also conducted an assessment in connection with the approval
of an export license application during 1991. In both cases, the
Department determined that the export of California heavy crude would
not have a significant impact on the environment.
The Department completed an assessment of the environmental affects
of the export of California crude oil in connection with the present
rulemaking. The assessment confirmed the previous findings that the
export would not have a significant impact on the environment. On
October 12, 1994, the National Oceanic and Atmospheric Administration
(NOAA) approved the assessment, including the conclusion that exports
of California heavy crude oil will not have a significant impact on the
human environment in accordance with the Council on Environmental
Quality's regulations implementing the National Environmental
Protection Act. The environmental assessment is available for public
inspection in Room H-4513.
Rulemaking Requirements
1. This rule was determined to be significant for the purposes of
Executive Order 12866.
2. This rule contains a collection of information subject to the
requirements of the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et
seq.). The public reporting burden for this collection of information
is estimated to average 12 hours per response, including the time
required for reviewing instructions, searching and maintaining the
necessary data, and completing and reviewing the collection of
information. Send comments regarding this burden to: Bernard Kritzer,
Manager, Short Supply Program, Office of Chemical and Biological
Controls and Treaty Compliance, Room 2096, U.S. Department of Commerce,
14th Street and Pennsylvania Avenue, N.W., Washington, DC 20230; and to
the Office of Information and Regulatory Affairs, Office of Management
and Budget, Washington, D.C. 20503 (ATTN: Paperwork Reduction Project--
0694-0027).
3. This rule does not contain policies with Federalism implications
sufficient to warrant preparation of a Federalism assessment under
Executive Order 12612.
4. A notice of proposed rulemaking and an opportunity for public
comment were not required for this rulemaking by section 13(a) of the
Export Administration Act of 1979, as amended (50 U.S.C.A. app. 2401-
2420 (1991, Supp. 1993), and Pub. L. No. 103-277, July 5, 1994).
Although the Export Administration Act expired on August 20, 1994, the
President invoked the International Emergency Economic Powers Act and
determined that, to the extent permitted by law, the provisions of the
Export Administration Act shall be carried out under Executive Order
12924 of August 19, 1994, so as to continue in full force and effect
and amend, as necessary, the export control system heretofore
maintained by the Export Administration Regulations and Act. As such,
under section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 603(a)
and 604(a)) no initial or final Regulatory Flexibility Analysis has
been or will be prepared.
List of Subjects in 15 CFR Part 777
Administrative practice and procedure, Exports, Forest and forest
products, Petroleum, Reporting and recordkeeping requirements.
Accordingly, Part 777 of the Export Administration Regulations (15
CFR Parts 730-799) is amended as follows:
1. The authority citation for 15 CFR Part 777 continues to read as
follows:
Authority: Pub. 90-351, 82 Stat. 197 (18 U.S.C. 2510 et seq.),
as amended; sec. 101, Pub. L. 93-153, 87 Stat. 576 (30 U.S.C. 185),
as amended; sec. 103, Pub. L. 94-163, 89 Stat. 877 (42 U.S.C. 6212),
as amended; secs. 201 and 201(11)(e), Pub. L. 94-258, 90 Stat. 309
(10 U.S.C. 7420 and 7430(e)), as amended; Pub. L. 95-223, 91 Stat
1626 (50 U.S.C. 1701 et seq.); Pub. L. 95-242, 92 Stat. 120 (22
U.S.C. 3201 et seq. and 42 U.S.C. 2139a); sec. 208, Pub. L. 95-372,
92 Stat. 668 (43 U.S.C. 1354); Pub. L. 96-72, 93 Stat. 503 (50
U.S.C. App. 2401 et seq.), as amended; E.O. 11912 of April 13, 1976
(41 FR 15825, April 15, 1976); E.O. 12002 of July 7, 1977 (42 FR
35623, July 7, 1977), as amended; E.O. 12058 of May 11, 1978 (43 FR
20947, May 16, 1978); E.O. 12214 of May 2, 1980 (45 FR 29783, May 6,
1980); E.O. 12730 of September 30, 1990 (55 FR 40373, October 2,
1990), as continued by Notice of September 25, 1992 (57 FR 44649,
September 28, 1992); E.O. 12735 of November 16, 1990 (55 FR 48587,
November 20, 1990), as continued by Notice of November 12, 1993 (58
FR 60361, November 15, 1993), and E.O. 12924 of August 19, 1994 (59
FR 43437, August 23, 1994).
PART 777--[AMENDED]
2. Section 777.6 is amended by adding a new paragraph (d)(1)(xii)
and a new paragraph (k) to read as follows:
Sec. 777.6 Petroleum and petroleum products.
* * * * *
(d) * * *
(1) * * *
(xii) Exports of certain California crude oil. California heavy
crude oil may be exported under the following conditions:
(A) The applicant certifies that:
(1) The commodity has a gravity of 20.0 degrees API or lower;
(2) The commodity is produced in the state of California, including
its submerged state lands;
(3) The commodity is not produced or derived from a U.S. Naval
Petroleum Reserve;
(4) The commodity is not produced from the submerged lands of the
U.S. Outer Continental Shelf;
(B) All aspects of the transaction comply with the provisions of
paragraph (k) of this section.
* * * * *
(k) Exports of certain California crude oil pursuant to
Sec. 777.6(d)(1)(xii). The [[Page 15673]] export of California heavy
crude oil having a gravity of 20.0 degrees API or lower, at an average
volume not to exceed 25 MB/D, will be authorized as follows.
(1) Applicants must submit their applications on Form BXA-622P to
the following address: Office of Exporter Services, ATTN: Short Supply
Program--Petroleum, Bureau of Export Administration, U.S. Department of
Commerce, P.O. Box 273, Washington, DC 20044.
(2) The quantity stated on each application must be the total
number of barrels proposed to be exported under the license--not a per-
day rate. This quantity must not exceed 25 percent of the annual
authorized export quota. Potential applicants may inquire of BXA as to
the amount of the annual authorized export quota available.
(3) Each application shall be accompanied by a certification by the
applicant that the California heavy crude oil:
(i) Has a gravity of 20.0 degrees API or lower;
(ii) Was produced within the state of California, including its
submerged state lands;
(iii) Was not produced or derived from a U.S. Naval Petroleum
Reserve; and
(iv) Was not produced from submerged lands of the U.S. Outer
Continental Shelf.
(4) Each license application must be based on an order, as defined
by Sec. 772.6(a) of this subchapter and must be accompanied by
documentary evidence of an order as described in Sec. 772.6(a)(2),
e.g., a letter of intent.
(5) The Office of Chemical and Biological Controls and Treaty
Compliance (CBTC) will adhere to the following procedures for licensing
exports of California heavy crude oil:
(i) CBTC will issue individual validated licenses for approved
applications in the order in which the applications are received (date-
time stamped upon receipt by CBTC), with the total quantity authorized
for any one license not to exceed 25 percent of the annual authorized
volume of California heavy crude oil.
(ii) CBTC will approve only one application per month for each
company and its affiliates.
(iii) CBTC will consider the following factors (among others) when
determining what action should be taken on individual license
applications:
(A) The number of validated licenses to export California heavy
crude oil that have been issued to the applicant or its affiliates
during the then-current calendar year;
(B) The number of applications pending in CBTC that have been
submitted by applicants who have not previously been issued validated
licenses under this section to export California heavy crude oil during
the then-current calendar year; and,
(C) The percentage of the total amount of California heavy crude
oil authorized under other export licenses previously issued to the
applicant pursuant to this section that has actually been exported by
the applicant.
(iv) CBTC will approve applications contingent upon the licensee
providing documentation meeting the requirements of both paragraphs
(k)(5)(iv) (A) and (B) of this section prior to any export under the
license:
(A) Documentation showing that the applicant has or will acquire
title to the quantity of barrels stated in the application. Such
documentation shall be either:
(1) An accepted contract or bill of sale for the quantity of
barrels stated in the application; or
(2) A contract to purchase the quantity of barrels stated in the
application, which may be contingent upon issuance of an export license
to the applicant.
(B) Documentation showing that the applicant has a contract to
export the quantity of barrels stated in the application. The contract
which may be contingent upon issuance of the export license to the
applicant.
(v) CBTC will carry forward any portion of the 25 MB/D quota that
has not been licensed, except that no unallocated portions will be
carried forward more than 90 days into a new calendar year.
Applications to export against any carry forward must be filed with
CBTC by January 15 of the carry-forward year.
(vi) CBTC will return to the available authorized export quota any
portion of the 25 MB/D per day quota that has been licensed, but not
shipped, during the 90-day validity period of the license.
(vii) CBTC will not carry over to the next calendar year pending
applications from the previous year.
(6) License holders:
(i) Have 90 calendar days from the date the license was issued to
export the quantity of California heavy crude oil authorized on the
license. Within 30 days of any export under the license, the exporter
must provide CBTC with a certified statement confirming the date and
quantity of California heavy crude oil exported.
(ii) Must submit to CBTC, prior to any export under the license,
the documentation required by paragraph (k)(5)(iv) of this section.
(iii) May combine authorized quantities into one or more shipments,
provided that the validity period of none of the affected licenses has
expired.
(iv) Are prohibited from transferring the license to another party
without prior written authorization from CBTC in accordance with
Sec. 772.13 of this subchapter.
(7) CBTC will allow, pursuant to Sec. 786.7(c) of this subchapter,
a 10-percent tolerance on the unshipped balance based upon the volume
of barrels it has authorized. CBTC will allow a 25-percent shipping
tolerance on the total dollar value of the license.
Dated: March 22, 1995.
Sue E. Eckert,
Assistant Secretary for Export Administration.
[FR Doc. 95-7525 Filed 3-24-95; 8:45 am]
BILLING CODE 3510-DT-P
