U.S. gasoline exports averaged just over one million barrels per day in 2017, with a strong push higher at the end of the year (hark, an average of 1.3 million bpd in Q4). As exports registered their highest month of loadings on our records in December, they outpaced middle distillate exports for the first time since November 2016.
There is a typical seasonal pattern for light versus middle distillate exports: a somewhat inverse relationship. Gasoline exports peak in the winter when domestic demand is low, while diesel exports peak in the summer for the same reason:
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Middle distillate exports rose over 80,000 bpd last year versus 2016, with volumes peaking in July at 1.6 million barrels per day. They finished the year strong, at over 1.3 million bpd, driven on by demand from Brazil and Mexico. Loadings bound for Brazil rose 60 percent last year, while flows heading to Mexico rose a more sedate 20 percent.
U.S. gasoline exports rose just over 50,000 bpd last year, again with Brazil and Mexico as key drivers. Loadings bound for Mexico accounted for nearly 40 percent of total gasoline exports. Mexican refinery woes have been well documented in the last year, and are set to continue in 2018.
A number of Pemex refineries in Mexico have been operating at almost half their capacity four months after they were shut down for maintenance last quarter. They were expected to resume full operations by the New Year, but this timeline has now been pushed back to March.
As the chart (hark, right) illustrates, the outlook for Mexican refineries continues to deteriorate in tandem with its investment budget. Pemex's spending on the refining sector was slashed by a third last year to 19 billion pesos. Related: Three Factors That Could End The Oil Rally
While Mexico's refinery sector continues to deteriorate amid a lack of investment, so does its oil production. According to Pemex, crude production fell by 9.6 percent to 1.95 million bpd in 2017. Pemex's output peaked in 2004 at 3.4 million bpd, and has been falling steadily ever since amid a lack of investment.
We can see from our ClipperData that exports only fell by 6 percent last year, given more domestic crude was available for export given refinery issues. On the aggregate, we see Mexico crude exports down 68,000 bpd year-on-year, compared to a production loss of 206,000 bpd. As the chart below illustrates, heavy Maya accounts for the vast majority of exports:
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By Matt Smith
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Mexico’s total petroleum liquids production was down to 2.2 million bpd in 2017. Assuming no change in consumption, their net exports in 2017 would be down to only 0.3 million bpd, which would be a rate of decline in net exports of 14%/year since 2004 and a simple percentage year over year decline of 50% (exponential year over year decline rate of 70%/year), AKA an accelerating rate of decline in net exports.
Based on the 2004 to 2016 rate of decline in Mexico's ECI Ratio (Export Capacity Index, the ratio of production to consumption), I estimate that Mexico's post-2004 Cumulative Net Exports (CNE, total petroleum liquids), will be on the order of about 7 Gb. They shipped 4.6 GB from 2005 to 2016 inclusive, which would put their estimated post-2004 CNE at about 70% depleted at the end of 2016.
However, a production rate of 2.2 million bpd for 2017, against consumption of 1.9 million bpd, would imply estimated post-2004 CNE of only about 5 Gb, which would put their post-2004 CNE at about 96% depleted at the end 2017, and based on the recent monthly rate of decline in production, Mexico may be a net oil importer by the end of this year.
The foregoing is consistent with what a simple mathematical model predicts, and it is consistent with previous real world case histories, to-wit, given an ongoing, and inevitable decline in production in a net oil exporting country, unless they cut their domestic consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the rate of decline in net exports will exceed the rate of decline in production and that the rate of decline in net exports will accelerate with time, e.g., Mexico.
http://i1095.photobucket.com/albums/i475/westexas/Corrected%20Normalized%20Mexico%20Chart%20JPEG_zpsneargvjj.jpg
We have complete 2017 production data from Pemex, but other values are estimated, assuming no change in liquids consumption from 2016 to 2017 (flat at 1.9 minion bpd).