Posted on 08/27/2015 10:29:10 AM PDT by thackney
Under licenses approved earlier this month by the Bureau of Industry and Security (BIS), an office within the Department of Commerce that administers export controls on crude oil, volumes of crude oil produced in the United States and Mexico up to the 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 United States, and Mexican heavy sour crude.
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 refinery fleet is configured to run light sweet crude. Therefore, the exchange should result in better optimization of refineries within both Mexico and the United States, 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 BIS’s August 14 announcement of swaps with Mexico. According to trade press, pending applications for other crude swaps involving countries in Europe and Asia were not approved.
Petróleos Mexicanos (Pemex), Mexico’s state-owned oil company, operates six refineries in Mexico with a combined crude distillation capacity of 1.54 million barrels per day (b/d) (Figure 1). 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 million b/d of crude oil, which included 658,000 b/d of Isthmus crude, which is a medium sour crude, and 497,000 b/d of Maya, a heavy sour crude blend.
| Crude oil | Crude type | API gravity | Sulfur weight | 2014 Exports thousand barrels per day |
|---|---|---|---|---|
| Maya | Heavy Sour | 20.5 | 3.40% | 890 |
| Isthmus (Istmo) | Medium Sour | 33.1 | 1.80% | 134 |
| Olmeca | Light Sweet | 33.8 | 0.73-0.75% | 91 |
| Altamira | Heavy Sour | 15.5-16.5 | 5.5-6% | 27 |
|
Source: U.S. Energy Information Administration calculations with data from Chevron Assays, PMI Comercio International, Pemex. |
Over the past 10 years, Maya crude production has become increasingly heavier, requiring more of the lighter crudes to be blended into it to maintain Maya’s contractual specifications. EIA estimates that Maya crude now contains approximately 20% light crudes in the blend. Therefore, while Mexico’s refineries are running more light crudes, either straight or as a blend with Maya, there are still limits on their ability to produce lower-sulfur gasoline without additional capital investments.
While the full effects of crude substitution in refineries can be complex, EIA analyzed the relative product yields and the sulfur levels of the resulting products for three Mexican crude oils (Maya, Isthmus, and Olmeca) along with the same information for two grades of U.S. Eagle Ford crude oils. The Isthmus, Olmeca, and Eagle Ford (40.1 API) crudes have similar product yields, but the sulfur levels of their distillation products (in parts per million, or ppm) are dramatically different (Figure 2).
The difference in sulfur content is particularly important for naphtha, a light cut from crude oil that is blended or further refined to make motor gasoline and other products. Mexican crude naphtha cuts have a sulfur content range of 150 to 1,390 ppm, and Eagle Ford naphtha cuts range from 6 to 70 ppm (Figure 2). The substitution of Eagle Ford crude for Mexican crudes (either run straight or as part of the Maya blend) would free up sulfur removal capacity in the Mexican refining system, thereby allowing that capacity to be directed toward converting some of current higher-sulfur gasoline production into lower-sulfur gasoline. Any increased supply of lower-sulfur gasoline to Mexico’s motor gasoline market, which consumed 761,000 b/d in 2013, would result in reduced sulfur emissions and other environmental benefits.
U.S. gasoline and diesel fuel prices decrease
The U.S. average retail price for regular gasoline decreased eight cents from the previous week to $2.64 per gallon on August 24, 2015, down 82 cents from the same time last year. The Midwest price fell 12 cents to $2.67 per gallon. The West Coast price decreased eight cents to $3.28 per gallon, followed by the East Coast price, which fell six cents to $2.43 per gallon. The Gulf Coast price decreased five cents to $2.29 per gallon, and the Rocky Mountain price fell two cents to $2.82 per gallon.
The U.S. average price of diesel fuel decreased five cents from last week to $2.56 per gallon, down $1.26 per gallon from the same time a year ago. The West Coast and Gulf Coast prices were both down six cents, to $2.77 per gallon and $2.41 per gallon, respectively. The East Coast and Midwest prices both decreased five cents, to $2.65 per gallon and $2.49 per gallon, respectively. The Rocky Mountain price fell four cents to $2.59 per gallon.
Propane inventories gain
U.S. propane stocks increased by 1.9 million barrels last week to 95.7 million barrels as of August 21, 2015, 21.0 million barrels (28.1%) higher than a year ago. Gulf Coast inventories increased by 1.0 million barrels and Midwest inventories increased by 0.6 million barrels. Rocky Mountain/West Coast inventories increased by 0.3 million barrels while East Coast inventories remained unchanged. Propylene non-fuel-use inventories represented 4.7% of total propane inventories.
Since heavy sour takes more to refine this will cost refiners money unless they get more heavy sour than they give light sweet to Mexico or
they get subsidies from the taxpayers (which government loves, loves, loves)
I wonder how the Donald’s negotiators would have handled this?
It is not a government swap. No subsidies.
Oil companies are not trading without cash differences.
Why would they ever be involved? The only action from the government is "proceed". The real action the US government should take is remove the export ban and get out of the way.
Pemex should know by the first quarter of next year which light U.S. crudes will work best, following test runs, he said.
The imports could come from either onshore or offshore production in the United States, he added, including shale or conventional oil.
He added that Pemex has already asked for several price quotes from U.S. crude producers, though he declined to name them.
- - - - - - -
Pemex collects bids from private companies including price for the swap.
Seems reasonable. But it looks like the Mexicans would build refineries that could process their own sulfur laden oil at a much cheaper cost..............................
Hercules Offshore, Inc
http://finance.yahoo.com/echarts?s=HERO+Interactive#{”range”:”5y”,”allowChartStacking”:true}
July, 15, 2013, closed at $7.85 per share
Today it opened at $0.05 per share
Ya takes your chances in the oil bidnes’
Build upgraded refineries takes some Pemex is lacking:
Billions of dollars...
And many years...
More Bankruptcy, more mergers.
Part of the cycle.
It wouldn’t if PEMEX was a PRIVATE company...................
Many years? Hell look at all the Mexicans they got! 6 months tops................
Like making a baby in a few weeks if you use enough pregnant ladies??
There’s a new housing subdivision being built across the street from me on an old elementary school property. There are 42 houses being built. The workers are all Hispanic/Latino and they are flying up! After the concrete foundation is laid and set, they swarm in, frame up the entire house in less than a day, roof it the next, drywall, electrical and plumbing and then outside brick work to finish. A new $300k+ home in less than a week..........................
Yeah, a bit of a difference from needing to build a coker unit and others.
20,000 hp gas compressor, Massive Drums that take a year or more for fabrication, etc
You are not going to go find the parts at home depot. Nor are you going to build it with semi-skilled labor.
Heck it took a few years just to engineer and design a similar project in Indiana. Look at the description of the project make BP Whiting capable of handling more heavy crude from Alberta.
800 modules and vessels
• 1,200 pieces of equipment
• 380 miles of pipe
• 50,000 tons of steel
• 1325 miles of wire and cable
• 15,000 concrete truck deliveries
• 95,000 truckload deliveries
• 14,000 piles to be driven
• 200 material deliveries per day
• 9,000+ Staff/Craft on ‘One Whiting’ site at peak
http://www.bp.com/content/dam/bp-bitumen/en_us/documents/WRMP.pdf
Yeah, but the Mexicans don’t have to worry with all those silly EPA and OSHA regulations and zoning requirements!....................
True that, but I’ve had experience with Mexico trying to build their own coker drums on site. After 18 months we gave up and placed an order at a fab shop. About a 2 year delay in construction.
Almost right isn’t a great way to deal with high temperature hydrocarbons.
“Seems reasonable. But it looks like the Mexicans would build refineries that could process their own sulfur laden oil at a much cheaper cost..............................”
One would need capital to do this.
Who would lend such to Mexico? No outsider would build a refinery there under the threat of it being nationalized.
But it would sure make life a whole lot more exciting!..................
I’ve been on the repair team following “exciting” in oil/gas/petrochm a few times...
I’ve been fortunate to not be there during the truly exciting times.
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