Mexico needs new crude markets as US shale boom alters landscape


Mexico’s reliance on oil exports to its northern neighbor is being jeopardized by the US shale boom, forcing suppliers to seek new buyers, Citigroup said.

Mexico, which exports about 880,000 bpd of crude to the US, is being “pushed out” by its chief trading partner as demand diminishes, according to Ed Morse, global head of commodities research at Citigroup in New York. 

US imports of Mexican crude fell 13% to the lowest in more than 20 years in 2013 because of increased domestic production, according to the US Energy Information Administration.

“Something’s got to give,” Morse said in an interview at the Institute of the Americas energy conference in La Jolla, California. “The US has not been a good neighbor to Venezuela or Mexico in the way the shale revolution has unfolded.”

Production of tight oil and shale gas accounted for almost 90% of the US’s crude growth the past two years as the country nears a historic high in output, according to the EIA. Hydrocarbons, including natural gas, crude and petrochemical exports, are now the country’s largest export product, Morse said. The US is the world’s biggest exporter of petroleum products, he said.

State-owned Petroleos Mexicanos announced this week that it will send its first shipment of Olmeca light crude to Switzerland in July. Pemex, as the company is known, also announced shipments of light crude to Hawaii, Japan, India and California this year.

Increased Output

“Pemex has lost around 300,000 barrels of daily exports to the US in the last few years and are certainly starting to make it up by selling Olmeca into Europe and the Pacific basin,” Morse said. “That can only go so far because their basic refining center is the US Gulf of Mexico,” which limits market expansion, he said.

Mexico passed legislation last year to end Pemex’s 75-year oil-production monopoly and allow private companies to enter the energy industry. Pemex, which has seen oil output fall nine straight years to 2.5 million bpd from 3.3 million in 2004, is forecast by the government to add at least 1 million bbl to daily production by 2025.

Mexico could produce as much as 4 million bpd of oil if legislation is implemented appropriately and the industry is properly regulated, Morse said. The country needs to enforce stricter guidelines and transparency to ensure the safety of new investments, he said.

“The resource bases will not be the constraint to reaching that targeted level of production,” Morse said. Successful integration of foreign companies will depend on “whether the government can assure that companies can surmount business practices that are deemed to be illegal in most of the world.”

Mexico took control of oil services contractor Oceanografia SA on Feb. 28 after Citigroup alleged $400 million in loan fraud. The Ciudad del Carmen, Mexico-based company, which provides maintenance and support services for offshore oil projects, receives most of its sales from Pemex contracts.

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