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Twenty Senators ask Congress to authorize more trade with Mexico

Senator Lisa Murkowski (R-AL) and 19 other senators asked Commerce Secretary Penny Pritzker to authorize the export of oil to Mexico in a letter this week. Murkowski said in her letter that expanding U.S.-Mexico energy relations would be mutually beneficial.

The letter address reports that Mexico’s PEMEX applied for swap transactions of Mexican heavy-crude for American light-crude oil. Existing U.S. laws “clearly authorize swaps and exchanges” of oil to Mexico and should be authorized in order to relieve the supply glut and oil quality mismatch problems in North America, said Murkowski.

PEMEX could be ready to start importing U.S. light-crude within months after an approval, reports Reuters. Under the proposal, PEMEX would import up to 100 MBOPD of light-crude and condensate to mix with its own heavier crude at domestic refineries. In exchange, the United States would get heavier Mexican crude for processing at its refineries. Earlier this month, the Energy Information Administration (EIA) reported that imports of light-sweet and light-sour crude to the U.S. Gulf of Mexico had declined to the point of being nearly nonexistent due to increases in production from shale and tight crude oil production.

Murkowski is strongly in favor of lifting U.S. crude export bans, something the Senator sees as an unnecessary relic of the 1970s Arab oil embargo. There is currently no clear timeline on legislation that would completely lift the ban, but Murkowski has been pushing for fewer restrictions through a series of steps, including swaps with Mexico.

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PEMEX struggling at home

State-owned PEMEX recently approved budget cuts of $4.16 billion, 11.5% of the previous year’s budget, and postponement of major projects due to the sharp drop in oil prices, reports Reuters.  The Mexican export crude oil blend traded at an average of $86/bbl in 2014, but is currently trading around $50/bbl.

The company will also be competing with private companies for the first time in decades following an energy policy overhaul in Mexico. Emilio Lozoya, Chief Executive of PEMEX, said the company will be renegotiating service contracts and cutting jobs in order to remain competitive.

Low oil prices have not been PEMEX’s only problem. In the past year, the company has seen theft from its pipelines skyrocket by 70% to 3,674 incidents in 2014, reports CBC. PEMEX lost an estimated $1.15 billion in revenue from the thefts in the first nine months of the year, according to the latest figure available. The company no longer ships finished products through pipelines in a hope to stem the tide, but is not seen as a long-term solution.

“The only thing you could do additionally to the gasoline is to put additives in it,” said industry consultant Guillermo Suarez, a chemical engineer. He said that the storage and distribution centers do not have the technical capacity to handle the delicate process, and it could lead to quality problems.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.