For some time, U.S. motor fuel exports to Mexico had been increasing at a healthy pace, reliably filling the void created by a series of production setbacks at Pemex’s refineries south of the border. From 2014 to 2018, U.S. gasoline exports to Mexico soared by more than 160%, from an average of 197 Mb/d five years ago to 517 Mb/d last year. Diesel exports rose by nearly 130%, to 279 Mb/d, over the same period. But that export-growth momentum has since sagged — in fact, export volumes for both gasoline and diesel actually declined in the first few months of 2019, primarily due to logistical challenges within Mexico. Also, Mexico’s new president has proposed ambitious plans to boost state-owned Pemex’s refining capacity, possibly posing a longer-term threat to U.S. exporters. So, is the boom in refined-product exports to Mexico over? Today, we examine what’s behind the downshift, and what the Mexican government’s effort to reinvigorate Pemex’s existing refineries — and build an entirely new one — may mean for U.S. gasoline and diesel exports in the 2020s.
Mexico’s shift from net energy exporter to the U.S. (primarily in the form of crude oil) to net importer (lots of U.S.-sourced gasoline, diesel and LPG, plus growing volumes of natural gas) has been a frequent topic in the RBN blogosphere. Back in 2015, in our With a Little Help from My Friends Drill Down Report, we noted that Mexico has tremendous potential to become energy self-sufficient, but troubles at state-owned Pemex had slowed efforts to develop new oil fields and left its half-dozen refineries operating at only about 60% of their 1.6-MMb/d capacity. Well, it turns out that those were the good ol’ days — as we pointed out late last year in our Runnin’ Down a Dream blog series, Mexico’s crude production (which averaged 3.3 MMb/d in 2005 and 2.3 MMb/d in 2015) had fallen to less than 1.8 MMb/d by then (it’s since dropped further to less than 1.7 MMb/d), and Pemex refineries were operating at less than 40% of their capacity. The decline in Mexico’s energy fortunes has been a boon to U.S. refineries, motor fuel marketers and shippers. We’ll start with gasoline.
Figure 1 below contrasts the drop in Mexican production of gasoline since 2014 (yellow line) with the rise in imports of gasoline from the U.S. (orange line). (Note that Pemex provides only the annual average production volumes for the 2014-16 period.)