Mexico Crude Swaps Likely To Provide Economic Benefits

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Under licenses approved by the Bureau of Industry and Security, an office within the U.S. Department of Commerce that administers export controls on crude oil, volumes of crude produced in the U.S. and Mexico up to an approved volume cap will be exchanged. These swaps will likely involve U.S. light, sweet crude, such as the growing output from shale formations in the U.S. and Mexican heavy sour crude, notes the Energy Information Administration (EIA).

The approved swaps are expected to be both economically and environmentally beneficial due to differences in U.S. and Mexican refineries. With significant coking and desulfurization capacity, U.S. Gulf Coast refineries are well-suited to process heavy sour crude. Conversely, part of the Mexican refiner fleet is configured to run light, sweet crude. Therefore, the exchange should result in better optimization of refineries within both Mexico and the U.S. and allow for increased supply of lower-sulfur gasoline from Mexican refineries.

Crude swaps are provided for in longstanding regulations governing crude oil export controls. However, no licenses for swaps had been granted until the Bureau of Industry and Security granted the swaps with Mexico in August. EIA reports that pending applications for other crude swaps involving countries in Europe and Asia were not approved.

Petróleos Mexicanos (Pemex), Mexico’s stateowned oil company, operates six refineries in Mexico with a combined crude distillation capacity of 1.54 MMbbld. Three of the refineries—Cadereyta, Madero, and Minatitlán, representing 42% of total crude distillation capacity—have coking capacity and can also produce lower-sulfur gasoline. The other refineries—Salamanca, Salina Cruz, and Tula—lack these and other upgrading units and consequently produce only limited amounts of lower-sulfur products and are not well-configured to process heavy crude oil. In 2014, the six refineries processed 1.2 MMbbld of crude oil, which included 658,000 bbld of Isthmus crude, a medium sour crude, and 497,000 bbld of Maya, a heavy sour crude blend.

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