Going to Mexico - Oil Flows Across the Gulf of Mexico No Longer a One-Way Street

Phillips 66 loaded its first Panamax tanker for export to Mexico over the weekend. Late on Sunday night, the SCF Prime signaled that it was headed for Pajaritos, Mexico, after loading at Phillips' terminal in Beaumont, TX.  Mexico is making history with this pivotal first purchase of Bakken crude from Phillips 66 at the U.S. Gulf Coast (USGC). Up until now, the crude oil trade between the U.S. and Mexico had been a one-way street, with oil moving from Mexico to the U.S. and not the other way around. But now, as Mexico’s state-run oil company Petróleos Mexicanos (Pemex) faces dwindling oil production and refinery outputs, importing light, sweet crude from the U.S. is a new avenue to revive Mexico’s refinery utilization. Today, we examine the new shift in the traditional flows of crude oil across the Gulf of Mexico.

U.S. Gulf Coast refiners have long seen the value of importing and processing Mexican crudes. The U.S. as a whole imported just over 600 Mb/d of oil from Mexico in 2017, and the lion’s share of those volumes were taken straight to Petroleum Administration for Defense District (PADD) 3 — the Gulf Coast. That made Mexico the fourth-largest crude supplier to the U.S. in 2017, bested only by Canada, Saudi Arabia and Venezuela. But while imports of Canadian crudes have surged in recent years — from 20% of total U.S. imports in 2008 to nearly 47% so far in 2018 — imports from just about everywhere else have declined, for a variety of reasons. The Saudi’s Arab Light can be displaced by domestic U.S. grades, while imports from Venezuela have gone down as a result of their declining production (see Meltdown!). 

Similarly, crude imports from Mexico have come off sharply in recent years, and the lull corresponds to declines in oil production there. (We covered this state of flux in With a Little Help From My Friends.) Figure 1 compares U.S. imports of Mexican crude with Mexico’s domestic output. The dashed red line (right axis) illustrates the drop in Mexican crude production: year-to-date output is less than half what it was in 2005. (It’s worth noting here that the majority of that crude, nearly 60% of the total 1.8 MMb/d in September 2018, is categorized as “heavy,” or low in API gravity, according to Pemex.)  Also in the last decade, at the same time Mexican production was decreasing, U.S. imports of Mexican crude (dark blue and light blue areas in Figure 1) have fallen by nearly 45% — from an average of 1.2 MMb/d in 2008 to 650 Mb/d so far in 2018 (left axis). The dark blue area shows the share of those imports that moved to refining centers on the Gulf Coast.

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