Mexico plans to halt crude oil exports in 2023 as part of President Andres Manuel Lopez Obrador’s nationalist goal of self-sufficiency in fuel production.
Petroleos Mexicanos, Mexico’s state-owned producer known as Pemex, will cut daily crude oil exports by more than 50 percent next year to 435,000 barrels before phasing out foreign sales next year, CEO Octavio Romero said during a press conference in Mexico City on Tuesday, Bloomberg reported.
The ambitious – and some say impossible – venture is part of Lopez Obrador’s quest to expand domestic gasoline and diesel production, which Mexico now buys mainly from American refineries. Like many large oil-producing countries, Mexico does not have the refining capacity to convert its oil wealth into fuels and other end products.
If fulfilled, Pemex’s promise will mark the exit from the international oil markets of one of its most prominent players in decades. At its peak in 2004, Pemex exported almost 1.9 million barrels per day to refineries from Japan to India and participated in OPEC meetings as an observer. Mexican crude oil also had a major impact on U.S. oil refining along the Gulf Coast, where plants were configured to process heavy, sulfur-rich oil.
Despite the promise, there are plenty of questions about whether the heavily indebted state-owned company can achieve its goal, and many question the logic of stopping crude oil exports, which are a significant source of money for bondholders in Mexico and Pemex. The company has a debt of $ 113 billion, which is more than any other oil producer in the world.
Skepticism about Pemex’s ability to refine all of its own raw material stems from the company’s poor experience and safety. Pemex refineries have been operating at low capacity for half a decade after years of underinvestment and lack of maintenance.
In contrast, US refineries typically operate at more than 90% of capacity; even during the worst pandemic collapse in energy demand, American fuel producers reached nearly 70%.
The promise “seems impossible to me because refineries are not able to operate at 80%,” said Rosanetti Barrios, a former energy ministry official with former President Enrique Pena Nieto. Another red flag is Pemex’s plan to do it on its own, without the expertise of foreign partners, “so if things don’t go as expected, there will be no buffer.”
Decline in production
Last month, Pemex sold just over one million barrels abroad on a daily basis. It is struggling to increase turnover at its refineries. Meanwhile, crude oil production has been declining every year since 2004, except last year due to increased production of condensate, very light oil that is usually lower in value than regular crude.
To achieve its energy goals, Pemex aims to process 1.51 million barrels of crude oil per day next year and 2 million in 2023, Romero said. The company will focus all its production on its own refineries, which include the Dos Bocas facility under construction in the southeastern state of Tabasco and a facility being purchased near Houston.
Pemex plans Dos Bocas to be operational next year, although full operation by 2023 is unlikely due to cost overruns and construction delays. The Houston suburb of Deer Park has been categorized by Pemex as part of the national refining system, despite its location north of the US border.
Mexico could produce an additional 190,000 to 220,000 barrels of gasoline a day if it could increase crude processing by 635,000 to 735,000 barrels by 2023. At this rate, Mexico could reduce US gasoline imports by up to 50% of 2020 levels according to the US Energy Information Administration.
Asian refineries, which buy more than a quarter of Mexico’s crude oil supplies, are expected to bear the brunt of any export restrictions. South Korean and Indian customers will be hardest hit, but US and European refineries will also be affected as Pemex retreats from its previous diversification plans away from the US market.
Mexico accounts for about 62% of total gasoline exports from US refineries in the Gulf of Mexico in 2020, according to EIA data.
“They don’t have the refining capacity available, they haven’t been able to increase their refining productivity, and the number of accidents has increased dramatically,” said John Padilla, managing director of IPD Latin America, an energy consulting firm. “You do not stop exports unless you significantly reduce crude oil production, which would have serious consequences for Pemex bondholders. Mexico will have to take on huge amounts of debt to Pemex. “