With a few limited exceptions, U.S. energy companies have been banned from exporting crude oil overseas since 1975. The law, enacted in the aftermath of the 1973 OPEC oil embargo, was meant to protect U.S. consumers by safeguarding domestic oil reserves and deterring oil imports.

But with America's newfound bounty of shale oil, several lawmakers and influential individuals are urging that the ban be lifted, or at least revised. One of the more convincing suggestions comes from Alaska's Sen. Lisa Murkowski, a leading Republican on the Senate Energy and Natural Resources Committee.

In a recent report, she argues that U.S. lawmakers should simply amend the definition of crude oil and allow a certain form of ultra-light crude oil, called condensate, to be exported. Let's take a closer look at why it might make sense to follow her recommendation.

An oil rig in Texas' Eagle Ford shale, one of the biggest condensate-producing regions in the United States. Photo credit: Oilandenergydaily.com.

Time to amend the definition of crude oil?
Murkowski's suggestion comes amid rapidly growing supplies of condensate, which are essentially an ultra-light form of crude oil that are found in oil reservoirs in gaseous form but condense to a liquid when recovered. Under current U.S. law, the export of unprocessed condensates is prohibited as part of the 40-year crude oil export ban.

But to reflect the nation's new era of oil abundance, Murkowski has urged the Bureau of Industry and Security to rewrite the definition of crude oil by excluding condensates from it. "The definition of crude oil could simply be updated, aligning the regulatory architecture with the new supply mix made possible by technological advancements," she suggests in the report, titled "License to Trade: Commerce Department Authority to Allow Condensate Exports."

She makes a valid point. U.S. production of condensates has surged to more than 1 million barrels per day, up by about 66% over the past three years, according to estimates by Houston-based energy consultancy RBN Energy LLC. Condensates now account for about 15% of U.S. crude oil production.

Yet demand for these growing condensate volumes is relatively low, because many U.S. Gulf Coast refineries are unable to process them since they were upgraded to handle heavier grades of crude oil over the past decade. To get around this issue, several refiners and midstream firms are building condensate splitters, which refine condensates into exportable products.

Where there's a will, there's a way
Kinder Morgan Energy Partners (NYSE: KMP), for instance, is currently building a 100,000-barrel-a-day condensate processing facility located along the Houston Ship Channel that will process condensates just enough to escape export restrictions. British oil giant BP (BP -0.56%) has already secured 80% of the facility's capacity through a 10-year contract with the midstream giant.

Following Kinder Morgan's lead, Magellan Midstream Partners (MMP) and Targa Resources (NYSE: NGLS) also recently announced plans to build condensate splitters. Magellan plans to build a new condensate splitter near its terminal in Corpus Christi, Texas, under a fee-based, take-or-pay agreement with Trafigura AG, one of the largest commodities trading houses in the world.

Similarly, Targa plans to construct a condensate splitter with a 35,000-barrel-per-day capacity at its Channelview Terminal on the Houston Ship Channel. The Houston-based partnership has already negotiated a long-term, fee-based supply contract with Noble Energy (NBL) and is waiting for the necessary permits so it can move forward with the project.

Impact of allowing condensate exports
While there's no telling whether lawmakers will succumb to Murkowski's and others' suggestions that condensates should be excluded from the crude oil export ban, allowing their export would probably give large domestic producers inventive to accelerate drilling activity and production, which would support additional job growth.

Indeed, some 100,000 to 300,000 barrels of condensates could be exported if U.S. lawmakers were to lift the ban, according to estimates by Citigroup. Large U.S. condensate producers would probably benefit as more lucrative foreign export markets open up, while refiners would probably suffer since condensate exports would boost domestic oil prices and reduce global ones, thereby compressing their margins.