It Ain't Heavy, It's My Maya - Impact of Changes to the Mexican Heavy Crude Benchmark

Maya, Mexico’s flagship heavy crude, has been a key staple in the diet of U.S. Gulf Coast refiners for a long time, and it has faithfully served as a price benchmark for nearly all heavy crude oil traded along the U.S. Gulf, and points beyond.  Maya’s price, relative to lighter benchmark grades such as Louisiana Light Sweet (LLS) or Brent, provides ready insight into the profitability of heavy oil (coking) refiners. But production of Maya peaked in 2004 and has declined considerably since then, raising questions about its continuing efficacy as a price benchmark. Now it’s come to light that a component of the Maya price formula was changed effective January 1, 2017. Although the change—related to the formula’s fuel oil price component—might be viewed as a relatively minor tweak, it raises new questions about this important heavy oil price benchmark. Today we begin a two-part series on Maya crude, the new price formula and its potential effects.

Mexico currently produces about 2.2 million barrels a day (MMb/d) of crude oil, which makes it the 12th largest producing country in the world. P.M.I. Comercio Internacional S.A. de C.V. (PMI) is the crude oil marketing entity of state-controlled Petróleos Mexicanos (PEMEX) and manages exports that currently comprise about one-half of production, ~1.1 MMb/d. PMI exports four distinct quality grades of crude oil, ranging from Altamira (an asphalt grade) and Maya on the lower end of the quality spectrum, to Isthmus in the middle, and Olmeca at the higher end. PMI reports that its typical customer base includes a total of about 25 refiners in the Americas, Europe, and the Far East.


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Maya is a heavy, high-sulfur grade—22 degrees API gravity (see Don’t Let Your Crude Oils Grow Up To Be Condensates for more on API gravity) and 3.5% sulfur—that makes up about 49% of total Mexican production and 78% of total Mexican crude exports. PEMEX’s own refineries largely lack the upgrading capacity to effectively process Maya; historically its natural market and primary destination has been coking refineries on the U.S. Gulf Coast. (See Complex Refining 101 for more on refinery upgrading processes.) Despite the fact that Maya production accounts for just under half of Mexico’s oil output, the heavy crude is produced within a relatively small area. “True” Maya crude is produced from the Cantarell Field, a once highly productive offshore area in the Bay of Campeche (below the inset in Figure 1). Cantarell was discovered in 1976 after a fisherman (the field’s namesake) reported an oil sheen on the water’s surface. According to the U.S. Energy Information Administration (EIA), production of crude oil from the Cantarell Field averaged approximately 228 Mb/d in 2015 (red slice in Figure 1 pie chart), which was about 90% below the peak production level of 2.1 MMB/D reached in 2004 (and 29% lower than 2014). The Ku-Maloob-Zaap (KMZ) field located near Cantarell is another heavy production source; its production (~0.9 MMb/d in 2015; yellow slice), which is blended into the Maya stream and not sold as a discrete grade, has been steady or climbing in recently years, helping to offset the decline in Cantarell Field production. 


Figure 1; Source: EIA Country Analysis Brief

Export Destinations

The primary export market for Maya is the U.S., particularly in the Gulf Coast area where refineries are more heavily concentrated and better configured to process heavy crude oils. According to the EIA, the U.S. received approximately 59% of Mexico’s crude oil exports in 2015. Most of Mexico’s crude oil exports to its northern neighbor are Maya blends, as Mexico tends to retain most of its lighter grades (Isthmus and Olmeca) for domestic refinery consumption. Figure 2 below shows historical production of Maya (blue bars), total Maya exports (red bars), and U.S. imports of Maya (green bars).

Figure 2; Sources: PMI, EIA, Baker & O’Brien Analysis

A key observation from the chart above is that the U.S. has reduced its imports of Maya crude—but not solely due to declining production. Looking back to 2007-08, of the total Maya exports from Mexico, the U.S. received 80%-plus. By 2015, the U.S. was importing only about half of the total Maya export volume. During this time period (2008-15), PMI diversified its export locations to include increased exports to Europe and the Far East. Figure 3 below shows Maya export trends by export destination. As you can see, the share of Maya exports headed for the U.S. (blue bar segments) has been falling fast—from 78% in 2013 to 68% in 2014, 60% in 2015, and 44% through the first nine months of 2016. Over the same time frame, the share of Maya bound to Europe (red bar segments) has more than doubled (from 11% in 2013 to 24% in January through September of last year) and the share shipped to the Far East (green bar segments) has more than tripled (from 9% in 2013 to 30% in the first nine months of 2016).

Figure 3; Source: PMI

Maya Quality and Typical Refineries

Crude oil has many qualities that factor into its price, but two of the more commonly discussed are: 1) gravity (expressed in degrees API) which is commonly bucketed into light, medium, or heavy; and 2) sulfur content—generally categorized as sweet (low sulfur) or sour (high sulfur). As noted above, Maya is classified as a heavy sour crude oil (22 degrees API, 3.5% sulfur). Figure 4 shows the crude oil quality spectrum of 130 traded crude oils with a few crudes highlighted in red for reference.

Figure 4; Source: Baker & O’Brien Analysis

Heavy sour crudes such as Maya are typically priced at a discount to the lighter sweet crude oils such as Brent or LLS due to their higher percentage yields of lower-valued products. However, not every refinery can process the less expensive heavy sour crudes. The refineries that can have heavy crude oil upgrading capacity include “delayed coking units” (or DCUs, commonly called cokers), which upgrade residual fuel oil produced by upstream units in the refinery into lighter, more valuable components such as naphtha and distillate that can be treated to make gasoline and diesel. (See I’d Like To Buy The World A Coke for more on cokers.) The ability to process heavy, sour crudes doesn’t come cheap; typically, the investment required to process crude oils such as Maya can easily be over $1 billion, so the price discount for Maya crude oil versus a benchmark light sweet crude oil such as Brent or LLS is a very important measure of whether the refinery can achieve a reasonable return on its investment. 

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The following chart (Figure 5) illustrates typical “primary” distillation yields from several heavy sour grades that compete with Maya, as well as from light sweet benchmark crude oils. The grades are presented in descending order of “bottom of the barrel” yield—that is, Canadian bitumen (bar to far left) yields the most vacuum residuum (purple bar segments), which is commonly processed in the coker, and smaller amounts of lighter materials (vacuum gas oil/green bar segments; kerosene and diesel/red bar segments; and naphtha and lighter products/blue bar segments), and the crudes to the right of it yield less and less vacuum residuum and more and more lighter products. Approximately 69% of the Maya yield is in lighter forms that require less costly secondary processing to create finished products. Vacuum gas oil is typically routed to the Fluid Catalytic Cracker (FCC) to make gasoline, while the kerosene/diesel wedge would be desulfurized to reduce their sulfur content and make ultra-low-sulfur diesel (ULSD) or jet fuel.  The naphtha and lighter fraction would be routed to an isomerization unit and reformer to make additional gasoline components to be blended into finished gasoline. The remaining 31% of the Maya yield (vacuum residuum) requires more intensive processing (i.e., more capital-intensive with higher operating costs) to make finished gasoline and diesel blending components. By comparison, LLS—the bar at the far right of Figure 5—yields approximately 92% lighter products with very little vacuum residuum.

Figure 5; Source: Baker & O’Brien Analysis

Yields for certain grades that generally compete with Maya along the Gulf Coast are also shown, including Castilla from Colombia, Western Canadian Select (WCS; diluted bitumen from Canada), BCF 17 from Venezuela, Marlim from Brazil, and Arab Heavy from Saudi Arabia. It should be noted that Maya has very low acidity and for that reason it can be processed in a larger number of coking refineries than more highly acidic grades, such as diluted bitumen (dilbit) from Western Canada and heavy grades from Venezuela, each of which require the refinery to have upgraded metallurgy (in other words, more expensive piping and other components).

Many Gulf Coast refineries have “full conversion” capabilities, meaning that they can convert even the heaviest boiling fractions into higher-valued finished products. The following table (Figure 6) summarizes volumes of Maya crude processed in Gulf Coast refineries in 2015. As seen in the table, many of these refineries are located in the Houston area. In particular, the Deer Park refinery processes approximately 50% of its crude slate as Maya, which is not surprising given that the Deer Park is a joint venture of Shell and PEMEX. For the remaining refineries in the table, only three processed Maya in 2015 at rates that comprised over 10% of the crude oil slate. With Maya’s sharp decline in production, even refineries that are naturally suited to process the heavy grade have had to turn elsewhere to keep their cokers running full.


Figure 6; Source:  EIA, Baker & O’Brien Analysis

In this blog we set the stage by providing an overview of Maya—its production trends and export destinations, quality, and the key Gulf Coast refineries that process it. In Part 2, we will discuss the Maya price formula that had been in place and how its price was adjusted to maintain its competitive position. We will also examine the impact of the recent fuel oil price component change and potential longer-term implications that are likely to stem from drastic changes to bunker fuel specifications and the increasing availability of heavy Canadian bitumen blends on the Gulf Coast.

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"He Ain't Heavy, He's My Brother" is the title of a popular ballad originally recorded by Kelly Gordon. It  became a worldwide hit for The Hollies in 1969 and for Neil Diamond in 1970.