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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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U.S. Energy Exports To Mexico Go Into Overdrive

Amid the differences between the U.S. and Mexico recently, including different views over immigration and trade, relations in the energy patch continues to expand. In fact, energy trade represented 12 percent of the value of all U.S. exports to Mexico and 5 percent of all U.S. imports from Mexico in 2018, the U.S. Energy Information Administration (EIA) said on Monday in a new report.

Moreover, when looking at the numbers, a major pivot is apparent. Historically, the bulk of the energy trade between Mexico and the U.S. consisted of Mexican crude oil imports as U.S. oil production (mostly conventional) continued to decline. It was also marked by U.S. net exports of refined petroleum products to Mexico.

Through 2014, U.S. imports of crude oil from Mexico were the most valuable component of this bilateral energy trade, the EIA said. Starting in 2015, however, the value of U.S. energy exports to Mexico, including rapidly growing volumes of both petroleum products and natural gas, exceeded the value of U.S. energy imports from Mexico as volumes of Mexican crude oil sold to its giant neighbor to the North declined.

Mexican oil production woes

Unfortunately, for Mexico the decline of crude to the U.S. as the country ramped up production, both offshore and from its shale boom, created headwinds for the country. Decreased exports to the U.S. also come as Mexico’s oil sector seeming falls apart at the seams. Last fall, Mexican national oil company Pemex saw its crude output dip to 1.76 million barrels per day (bpd), marking one of the country’s lowest production levels since 1990 when publicly accessible records begin.

The production woes come amid reported rampant corruption in the oil company, while company officials have said that the extended output slide is due to the natural decline of its major fields as well as budget cuts in recent years that have crimped its exploration and production activities. Related: Investors Unconvinced By Halliburton’s Shale Optimism

During his election campaign last year, newly elected Mexican President Andres Manuel Lopez Obrador said Pemex should keep more crude for its refineries instead of exporting it to reduce Mexico’s dependency on imported fuels, but the country’s refining sector needs a lot of work to make this plan successful.

U.S. petroleum exports to Mexico triple

The value of U.S. exports of petroleum products to Mexico nearly tripled from $10.4 billion in 2008 to a record high of $30.5 billion in 2018, while the value of U.S. energy imports from Mexico remained at a near-record low of $15.8 billion in 2018 for the second year in a row, the EIA added.  

Crude oil accounts for most U.S. energy imports from Mexico, averaging 665,000 bpd last year. In 2018, Mexico was the source of 9 percent of U.S. imported crude oil, behind only Canada and Saudi Arabia. The value of U.S. crude oil imports from Mexico totaled $10 billion in 2017 and $14 billion in 2018.

Natural gas trade is dominated by pipeline shipments between the U.S. and Mexico. U.S. natural gas exports to Mexico totaled 1,862 Bcf in 2018, 90 percent of which was sent through pipelines.

The LNG slice of the pie

Though crude oil and natural gas have been the prime part of energy trade between the two countries since 2016 the U.S. has started to ship liquefied natural gas (LNG) to Mexico. By 2018, Mexico became the second largest buyer of American LNG after only South Korea, the world’s third largest LNG importer.

U.S. LNG exports to Mexico by vessel between August 2016 and December 2018 totaled 350 Bcf or 18 percent of all U.S. LNG exports. There are even reports coming out of Texas that the super-cooled fuel is starting to be exported to Mexico via tractor trailer - a new development, though it’s still a niche market. LNG is prohibited by law from being shipped by rail, however, President Trump recently signed an executive order for the Department of Transportation to lift the ban.

By Tim Daiss for Oilprice.com

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