US, Mexico energy trade in flux

Energy trade between the US and Mexico is in flux with rising crude production in the US, falling production in Mexico, and rising Mexican demand for gasoline, diesel, and other petroleum products. Mexico is the third-largest supplier of crude to the US, but last year shipments of Mexican crude to the US dropped to 972,000 b/d—the first time below 1 million b/d since 1994, the US Energy Information Administration reported.

Mexico’s share of total US crude imports fell to 11% last year from 16% in 2003. Mexico’s production reportedly peaked in 2004 at 3.83 million b/d.

While the US consumes Mexican crude, it exports petroleum products to Mexico, some 600,000 b/d in 2012. Mexican demand for products has jumped 20% in the last decade while production capacity remained essentially flat, so Mexico increasingly looks to the US for supply. Since 2004, US exports of products to Mexico have nearly tripled, EIA said.

Mexico exports its heavier crude and keeps its lighter crude, mostly from southern regions, for its own refineries. More than 90% of Mexico's heavy crude production is in its northeastern offshore region, which also accounts for 75% of Mexico’s production decline. Production trends in Mexico vary by grade and location. Its heavy crude production fell 46%, or 1.1 million b/d in 2004-12, officials said. However, production of light and extra light crude oil rose 200,000 b/d in that same period.

In recent years, US refineries have invested billions to upgrade facilities to process heavy, sour crude.

To recoup that investment, refiners likely will continue importing heavy oil from Mexico and Venezuela, although the export of heavy crude from Canadian tar sands is rapidly rising.

Mexico’s economy is export oriented with total value of its exports climbing to $32.9 billion in April from $31.9 billion in March. The US is its biggest market, receiving 78% of its exports. Canada is its next biggest export market at 3%. Oil accounts for 14% of Mexico’s exports, behind automobiles and related products at 24% of its total shipments.

In the last 23 years, Mexico’s exports have averaged $10.8 billion/month from a record low of $1.2 billion in February 1980, when the global oil boom began to bust and crude prices fell, to a record high of $33.9 billion last October.

Natural gas trade

Mexico is a growing market for US natural gas, importing a record 2.1 bcfd last year, up 21% from 2011. Across-the-border flows from US pipelines accounted for 80% of Mexico's total gas imports in 2012.

“Since 2006, imports of [LNG] have made up the remainder of Mexico’s imported natural gas needs,” EIA said. Mexico’s LNG imports averaged about 400 MMcfd last year, about 20% of its total gas imports.

Mexico began importing LNG in 2006, mostly from Nigeria, Qatar, and Peru. LNG amounted to 38% of Mexico's total gas imports in 2010, more than 500 MMcfd. “LNG’s share of Mexico’s imports has declined since then because of growing natural gas imports via pipelines from the US, which have been more economically attractive given the recent decline in US gas prices,” EIA reported.

The future role of LNG imports in satisfying Mexico’s need for reliable gas supply “depends mostly on the relative economics and constraints of importing natural gas from the US by pipeline vs. the price and availability of importing LNG; production trends in Mexico; and development of additional natural gas infrastructure in Mexico,” said EIA.

Altamira, Mexico’s first LNG regasification facility, has a capacity of 600 MMcfd and began commercial operations in 2006. In its first year, it imported an average 100 MMcfd of LNG from Trinidad and Tobago, Qatar, Egypt, and Nigeria.

The Energia Costa Azul LNG terminal in Ensenada, Baja California, began operation in 2008 with a capacity of 1 bcfd. However, it has been underused because LNG shipments were diverted to more lucrative Asian markets. Also potential demand for shipments of regasified LNG from Mexico to the western US has decreased because expansions of the Kern River and Ruby pipelines now carry US gas to that market.

Meanwhile, the 500 MMcfd Manzanillo LNG regasification terminal entered service last year. Construction of as many as five LNG regasification projects over the next several years could add more than 4 bcfd of incremental regasification capacity, EIA speculated.

(Online May 28, 2013; author's e-mail: samf@ogjonline.com)

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