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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Mexico To Halt All Oil Exports If Obrador Wins

Oil Platform

Mexico’s energy industry strategy will be overhauled if the frontrunner for the next presidential term, Andres Manuel Lopez Obrador, wins the July election, his senior energy adviser said in an interview with Reuters.

Rocio Nahle, who is the most likely Energy Minister of the future cabinet if Obrador wins, also said that the leftist candidate is not against foreign energy investment in Mexico. Even so, the contracts signed with international oil companies by the current government will be scrupulously reviewed.

What Obrador seems to be opposed to is sending crude oil abroad. In fact, the Obrador government would try to put an end to all crude oil exports within three years of coming into office, focusing instead on refined products.

“In a three-year period, at the latest, we need to try to consume our own fuels and not depend on foreign gasoline,” Nahle said. This would be bad for U.S. refiners, who export the biggest portion of their production to Mexico. In the last few years, Reuters notes, Mexican imports of gasoline and diesel have risen to more than 800,000 bpd, representing over 66 percent of domestic demand.

This could be the reason why Obrador’s team is seeking to change the focus of the Mexican energy industry to achieve greater self-sufficiency in the fuel department. Yet exports are also a priority. Now, Pemex exports most of its crude to the U.S. Gulf Coast refineries, but also some to Asia and Europe. Last year, the average daily export rate was 1.17 million bpd.

Fuel exports would be more lucrative, Nahle says, so the likely future government of Mexico is devising plans to expand the processing capacity of Pemex’s six refineries and build one or two more, to add between 300,000 bpd and 600,000 bpd to the existing refining capacity of the country, which is 1.6 million bpd of crude.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on February 23 2018 said:
    It is common sense for Mexico to want to export refined products rather than crude oil. In so doing, Mexico adds value to its exports and also earns more from its oil.

    Mexico’s demand for gasoline and diesel is estimated at 1.21 million barrels a day (mbd) 66% of which is imported from the United States. With a refining capacity of 1.6 mbd, Mexico could easily become self-sufficient in gasoline and diesel with the added benefit of utilizing its refineries to full capacity.

    The loss of revenue from crude exports of 1.17 mbd is more than offset by giving business to their own refineries and also pocketing the difference between the value of refined products imports and that of its crude oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Jeffrey J. Brown on February 23 2018 said:
    In any case, Mexico is on the verge of becoming a net oil importer, on a total liquids basis.

    Mexico's production of total petroleum liquids fell from 3.8 million bpd in 2004 to 2.5 million bpd in 2016. Their total liquids consumption fell slightly, from 2.0 million bpd in 2004 to 1.9 million bpd in 2016. The 12 year rate of decline in production was 3.5%/year, but net exports fell at 9.6%/year, down from 1.8 million bpd in 2004 to 0.6 million bpd in 2016 (total petroleum liquids).

    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 (what I call the 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, with a production rate of 2.2 million bpd for 2017, against consumption of 1.9 million bpd, it 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 recent production decline rates, Mexico could easily be a net oil importer by the end of 2018.

    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.
  • hall monitor on February 23 2018 said:
    Building new oil refineries in Mexico may have made sense 20 or more years ago. It makes no sense now. Two plants, as discussed in the article, could cost Mexico more than US$50 billion, an enormous amount for Mexico.

    Increasing the capacity of existing refineries may make sense.

    With about 20GW of oil fired generation capacity, Mexico still gets roughly 1/3 of its electricity from oil fired generation. It would be much better served using its investments to aggressively convert/replace those plants and export the resulting excess oil. Construction cost would likely be less than building new refineries. Regardless of whether they went with renewables or natural gas, operating costs for the new plants would be much lower than at present and much less volatile.

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