Lower Mexican oil production contributes to lower crude oil exports to U.S.

Crude oil exports anchor the energy trade between Mexico and the United States. In 2012 Mexico was the world's ninth largest oil producer. The value of crude oil exports from Mexico to the United States reached $35.7 billion in 2012, having more than doubled since 2004. However, Mexico's crude oil production and exports to the United States have both fallen, with exports down to 0.96 million barrels per day (bbl/d) in 2012 from 1.48 million bbl/d in 2004. Last year was the first time since 1994 that annual exports of Mexican crude oil to the United States fell below 1 million bbl/d. Mexico's share of total U.S. crude oil imports fell to 11% in 2012, down from 16% in 2003. Typically, Mexico exports its heavier crude oils and keeps its lighter crude, mostly from southern regions, for its own refineries. More than 90% of Mexico's heavy crude oil production occurs in the Northeastern Marine production region (see map), and this is where 75% of Mexico's oil production declines have occurred. The heavy crudes are predominantly composed of the Maya variety, which state oil company Petroleos Mexicanos (Pemex) mainly produces from the Cantarell and Ku-Maloob-Zaap offshore oil fields, located along the coast of the Yucatan Peninsula. Crude oil production trends in Mexico vary by grade and location. Mexico's production of heavy crude oil fell 46%, or 1.1 million bbl/d, from 2004 to 2012. However, Mexico's production of light and extra light crude oil rose 0.2 million bbl/d between 2004 and 2012, partially offsetting the heavy crude declines.

In 1938, Mexico nationalized its hydrocarbons, and its constitution continues to prohibit foreign companies from owning any portion of production. Throughout much of the world, and certainly in the United States, equity shares of hydrocarbon production are a significant incentive for companies to share the risk of production and, at the same time, provide technical expertise. In 2008, Mexico's Congress enacted energy reform legislation to help address concerns related to Mexico's slow application of advanced exploration and production technologies and its declining oil production since 2004. The reforms retained Pemex ownership of all crude oil produced, but they allowed foreign companies to participate in the oil sector through service contracts. As a result, Pemex entered into a handful of partnerships, mostly concentrated in lower-risk production areas where there is a relatively greater likelihood of recovery. So far, partnerships have not included major international oil companies.

Crude oil exports anchor the energy trade between Mexico and the United States. In 2012 Mexico was the world’s ninth largest oil producer. The value of crude oil exports from Mexico to the United States reached $35.7 billion in 2012, having more than doubled since 2004.

However, Mexico’s crude oil production and exports to the United States have both fallen, with exports down to 0.96 million barrels per day (bbl/d) in 2012 from 1.48 million bbl/d in 2004. Last year was the first time since 1994 that annual exports of Mexican crude oil to the United States fell below 1 million bbl/d.

Mexico’s share of total U.S. crude oil imports fell to 11% in 2012, down from 16% in 2003.

Typically, Mexico exports its heavier crude oils and keeps its lighter crude, mostly from southern regions, for its own refineries. More than 90% of Mexico’s heavy crude oil production occurs in the Northeastern Marine production region (see map), and this is where 75% of Mexico’s oil production declines have occurred. The heavy crudes are predominantly composed of the Maya variety, which state oil company Petroleos Mexicanos (Pemex) mainly produces from the Cantarell and Ku-Maloob-Zaap offshore oil fields, located along the coast of the Yucatan Peninsula.

Crude oil production trends in Mexico vary by grade and location. Mexico’s production of heavy crude oil fell 46%, or 1.1 million bbl/d, from 2004 to 2012. However, Mexico’s production of light and extra light crude oil rose 0.2 million bbl/d between 2004 and 2012, partially offsetting the heavy crude declines.

In 2008, Mexico’s Congress enacted energy reform legislation to help address concerns related to Mexico’s slow application of advanced exploration and production technologies and its declining oil production since 2004. The reforms retained Pemex ownership of all crude oil produced, but they allowed foreign companies to participate in the oil sector through service contracts.

As a result, Pemex entered into a handful of partnerships, mostly concentrated in lower-risk production areas where there is a relatively greater likelihood of recovery. So far, partnerships have not included major international oil companies.

As a note of explanation, crude oil has various proportions of hydrocarbons.

The proportion of light hydrocarbons in the petroleum mixture varies greatly among different oil fields, ranging from as much as 97 percent by weight in the lighter oils to as little as 50 percent in the heavier oils and bitumens.

The lighter hydrocarbons are more valuable, producing refined petroleum products like aircraft fuel and gasoline. The heavier hydrocarbons are used for substances like tar. Once the hydrocarbons have been refined from the crude oil, only varieties of mineral oil remain.

Crude oil also varies considerably as to how much it is contaminated by sulfur. With little sulfur, when it burns it has a sweet odor; with a lot, a sour odor. And the more sulfur it has, the harder it is to refine, the more residue it leaves in engines, and the more sulfur dioxide pollution it produces.

So the bottom line is that everybody wants “light, sweet” crude oil, though the vast majority of the crude oil in the world is “heavy, sour”. Many oil refineries even refuse to refine “heavy, sour”, as it is more expensive to refine, and is worth less when refined.

Every year, the oil industry spends a lot of time trying to figure out exactly how much various refined oil products will be needed. The biggest concern is gasoline and home heating oil, with jet fuel far behind. They do not want to make much more than the market needs, because it is very expensive to store.

The heavier hydrocarbons are used for substances like tar

That was true many decades ago. But modern refineries use thermal and catalytic crackers, cokers, etc to take the heavies and break them down into the more valuable lighter components.

With little sulfur, when it burns it has a sweet odor; with a lot, a sour odor. And the more sulfur it has, the harder it is to refine, the more residue it leaves in engines, and the more sulfur dioxide pollution it produces.

In the US, the EPA has mandated the sulfur in diesel be reduced to 0.0015%. Gasoline is being lowered from 0.008% down to 0.001%. Off-road fuels have similar requirements today. So nearly all the sulfur is removed at the refinery, it is not left in products.

So the bottom line is that everybody wants “light, sweet” crude oil, though the vast majority of the crude oil in the world is “heavy, sour”.

Actually, refineries want to purchase what they were designed to run optimally. Many of the US refineries have been upgraded to handle the heavier, sour crudes. Those crudes are cheaper and many of the refineries have already invested the billions of dollars necessary to process them and meet spec fuels. They don't want to buy the higher priced light, sweet crudes at this point.

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