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Rising electricity demand. Heightened geopolitical tension. Fragility in energy markets. These are some of the big stories shaping the energy transition outlined in the International Energy Agency’s newest...
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Mexico is frequently thought of as a producer of energy commodities, but based on the value of its imports the country is now more like a large consumer market. Until less than a decade ago, Mexico consistently registered annual surpluses in petroleum products trade.[1] However, increasing domestic demand and declining production levels at Pemex (Petróleos Mexicanos)—as well as policies that fell short of nurturing the growth of key activities of the hydrocarbon value chain—have collectively tilted the balance toward imports.
In 2015, for the first time in decades, the value of petroleum product imports was larger than that of exports. Since then, Mexico’s deficit has expanded at a vigorous pace (Figure 1). In 2022, despite the nationalistic approach of recent years, which seeks to serve the domestic market with production from Pemex,[2] imports of petroleum products reached a record high of $74.11 billion while exports amounted to just $38.97 billion. This resulted in the largest-ever deficit of $35.12 billion—more than three times the 2015 trade deficit, according to Mexico’s Central Bank (Banxico).[3] This article briefly explains why imports of petroleum products are rising despite Mexico’s goal of self-sufficiency.
A Weak Export Base
Mexico’s negative trade balance is a reflection of the weaknesses in its hydrocarbon sector. Crude oil production and exports have long been policymakers’ main concerns due to their importance as sources of government revenues. In contrast, since the early 2000s, the development trajectories of natural gas, refined products, and petrochemicals have favored demand and/or import increases. For example, natural gas demand has soared in line with a greater power generation capacity from combined cycle plants.[4] Meanwhile, petrochemical imports expanded as the production capabilities of Pemex deteriorated sharply.[5]
The mix of petroleum products comprising Mexico’s trade reflects this reality (Figure 2). Crude oil, by far the most important export commodity, accounted for $31.63 billion of the total export revenues of $38.97 billion in 2022 (Figure 2, left panel). Even as crude oil output declined—from a peak of 3.39 million barrels per day (MMbd) in 2004[6] to 1.68 MMbd in 2022—its share in total exports remained high at 89.84 percent and 81.15 percent, respectively, in those same years. Throughout this period, the average share of crude oil exports stood at 85.9 percent of overall petroleum products exports.[7]
Domestic Production Challenges
In volume terms, Mexico is the United States’ largest export market for petroleum products and natural gas (2022).[8] The composition of imports (Figure 2, right panel) signals where the challenges of Mexico’s hydrocarbon industry lie.
Refining: The capacity utilization rates of refineries declined from 72.43 percent to 49.74 percent over nearly a decade between 2013 and 2022.[9] As a result, production of petroleum products also took a hit (Figure 3)[10] creating a considerable gap in the domestic market and fueling imports, largely of motor fuels such as gasoline and diesel.
Pemex’s refining woes may well be influenced by the less-than-adequate levels of capital expenditures (Figure 3). Despite being at the center of the country’s energy policy in recent years, its own estimates show that capital expenditures on Mexico’s operating refineries have halved from a yearly average of $1.80 billion in 2013-2017 to just $0.91 billion in 2018-2022.[11]
Gasoline: From 2013-2022, the production of gasoline fell from 0.437 MMbd to just 0.271 MMbd, triggering a jump in imports[12], an area of growing concern for the current administration. In 2022, Mexico imported gasoline to the tune of $23.28 billion, up from $16.3 billion in 2013. In the same period, diesel imports grew from $5.56 billion to $13.50 billion (Figure 2, right panel).
Natural gas: Facing significant production challenges, the share of imports in total domestic supply of natural gas stood at 84.6 percent during January-September 2022, up from 54 percent in 2013.[13] An aggressive transport infrastructure buildout during the 2010s, including adding transport capacity along the northern border, granted Mexico relatively easy access to the inexpensive natural gas from Texas producing basins to meet the increasing domestic demand, especially from the power sector. In 2022, 61.1 percent of Mexico’s total power generation came from natural gas (via combined cycle plants) compared to 49.1 percent in 2013[14], contributing to an increase in the value of Mexico’s natural gas imports from $4.02 billion in 2013 to $13.77 billion in 2022.
Petrochemicals: Within the structure of Pemex, petrochemicals appear to be the weakest link,[15] with production levels plummeting below those of refined products, crude oil and gas. Once considered a reliable supplier of petrochemical raw materials for a broad range of industries, Pemex has gradually abandoned that role, compelling local user firms to either operate at lower capacity rates or source inputs abroad. As a result, imports amounted to $13.22 billion in 2022, up from $9.66 billion a decade earlier.
What Lies Ahead?
Mexico’s energy trade is beleaguered by its reliance on a single commodity for exports. Given the potential perils—a fall in prices can hit the trade balance and government finances—it is important to evaluate why politics and policy setting have not advanced other value-adding activities of the hydrocarbon industry.
Mexico’s increasing trade deficit in petroleum products is the outcome of a long process that has unfolded over time and hit Pemex’s figures related to the production of hydrocarbons (crude oil and natural gas), refined products, and petrochemical raw materials. That, in turn, has undermined the company’s ability to serve the domestic market. In recent years, policymakers have tried to turn things around, mostly by seeking to process higher volumes of crude oil to boost production of motor fuels. However, if crude output remains flat, this strategy may cut into exports of Mexico’s most important export commodity and fall short of reducing the country’s trade deficit.
The government’s goal of strengthening energy sovereignty may require a broader perspective, including policy tools to ease the demand of refined products, whose imports (including gasoline and diesel) amounted to $47.12 billion, or 63.6 percent of Mexico’s overall imports of petroleum products in 2022.
Notes
[1] Trade refers to exports and imports of crude oil, natural gas, refined products (gasoline, diesel, fuel oil, etc.) and petrochemicals.
[2] Government of Mexico, “Stenographic version. Report: 2 Years of Government 2018-2020,” December 1, 2020, https://tinyurl.com/29h88byp; Government of Mexico, “In 2023 we will process all fuels and low prices will remain, confirms the president,” December 22, 2021, https://tinyurl.com/msaa63c8.
[3] Records of petroleum products trade are available from 1993. Banxico (Mexico’s Central Bank), “Economic Information System, Historical series of petroleum products trade balance,” https://tinyurl.com/9z2v5x3z.
[4] Natural gas demand from the power sector grew from 1,011 MMcfd in 2000 to 3,146 MMcfd in 2022. A year earlier, demand amounted to 4,882 MMcfd. SIE (Mexico’s Energy Information System), “Dry natural gas balance,” https://bit.ly/3ML3qpB.
[5] From 2010 to 2022, production of petrochemicals at Pemex declined from 11.5 Mt to 3.8 Mt, respectively. SIE (Mexico’s Energy Information System), “Production of petrochemical products,” https://tinyurl.com/mwz5th8y.
[6] Mexico’s crude oil production peaked that year.
[7] From 2004 to 2022, crude oil exports represented less than 80 percent of the overall value of Mexico’s exports only once: 79.87 percent in 2015. These are author’s estimates based on information from Banxico.
[9] Pemex (Petróleos Mexicanos), Annual reports submitted to the U.S. Security Exchange Commission, Form 20-F, https://tinyurl.com/y7v7pzcd.
[10] Mexico’s production of refined products declined from 1.276 MMbd in 2013 to 0.596 MMbd in 2020. In 2022 production reached 0.833 MMbd. Pemex Institutional Database, “Production of petroleum products,” https://tinyurl.com/5crmhfdv.
[11] It refers to the company’s six refineries in Mexico. Pemex (Petróleos Mexicanos), Annual reports submitted to the U.S. Security Exchange Commission, Form 20-F, https://tinyurl.com/y7v7pzcd.
[12] Pemex, “Business Plan 2023–2027,” https://bit.ly/3l2z1rb; Pemex, “Business Plan 2019–2023,” https://bit.ly/2MOXHya.
[13] Values do not include Pemex. National Commission of Hydrocarbons (CNH), natural gas balance, September 2022, https://tinyurl.com/yk46zebr.
[14] SIE (Mexico’s Energy Information System). Gross power generation by technology (CFE and PIE), https://bit.ly/3ML3qpB.
[15] In addition to acute production declines, the petrochemical arm of Pemex received just 1.01 percent of total capital expenditures between 2019 and 2022, while allocations to exploration and production (E&P) activities and refining averaged 84.45 percent and 11.61 percent, respectively, during the same period. Based on information from Pemex (Petróleos Mexicanos), Annual reports submitted to the U.S. Security Exchange Commission (2022 and 2020), Form 20-F, https://tinyurl.com/y7v7pzcd.
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