Mexico’s growing middle class is rapidly becoming Gulf Coast refiners’ gain. In a recent article published in New Orleans CityBusiness, reporter Joe Michael outlined this growing trend. He interviewed SDR’s Energy Director Steve Crower to help paint the picture.
Until recently, and as the charts below from the publication indicate, oil and gas trade between the U.S. and Mexico was dominated by U.S. imports of Mexican crude oil. However, that balance has flipped, and several factors have contributed. “The story is that Mexico is growing. They are commuting to cities,” stated SDR’s Crower in the article. “They are consuming at a massive rate.”
As a result, shipments of finished gasoline and diesel made up the majority of U.S. exports to Mexico in 2015, representing $16 billion of the $20.2 billion export total, according to the article. In contrast, the U.S. paid just $8.7 billion in energy imports from Mexico in 2015.
Source: New Orleans CityBusiness
And although “U.S. refineries don’t make a lot on a gallon of gasoline, they make enough,” said Crower. “The reason they are exporting is because they make more money by exporting,” he added. “Refineries on the Gulf Coast are well-positioned to capitalize with capacity to refine heavy to light crudes and relatively low production costs and shipping rates to Mexico,” he continued.
But Mexico’s increased demand for oil and natural gas only tells part of the story. As the article states, “Mexico’s aging refineries have struggled to produce cleaner gasoline and distillate fuels” and “state-owned Petróleos Mexicanos (Pemex) has foregone refinery upgrades and expansions to devote limited resources to upstream production.”
Mexico’s leaders see opportunity in opening oil and gas exploration and production to private investment, and they hope to start tapping large offshore potential. But that will take time.
In the meantime, U.S. exporters are benefiting. Sixty percent of all U.S. natural gas exports are going to Mexico, and demand is expected to increase by at least 22 percent over the next 15 years, according to the article. Improving matters even more, the article states that “pipeline transport capacity will nearly double in 2018 through a massive buildout of infrastructure north and south of the border to fuel new natural gas-fired power plants.”
This growing trend is a bright spot for an industry that has been hit hard by low oil and commodity prices in recent years.