American gasoline exports to Mexico have doubled in past five years

U.S. exports of crude, LNG and gasoline are all on the rise, driven by the renaissance in the American energy industry. Crude and LNG exports commonly travel far overseas, supplying countries in Europe and East Asia. American exports of gasoline, on the other hand, are much more concentrated, with a single country receiving more than half of all shipments.

Mexican demand for U.S. gasoline has risen sharply in the past five years, boosted by market reforms in the past two years. While Mexico is one of the world’s largest producers of crude oil, with the 11th-most production in 2017, its production of refined products is well below its consumption, as refineries regularly run at less than 50% of capacity.

Reforms over the past two years made major changes to the county’s gasoline markets, removing government-set prices and allowing companies to import fuel and open retail stations. This has opened the door for gasoline shipments to Mexico to rise rapidly, increasing by about 140 MBPD from 2015 to 2017.

However, the results of the country’s upcoming election could upend this business, if front-runner Andres Manuel Lopez Obrador wins as is currently forecast.

The candidate’s top energy advisor has stated that policy would focus on boosting domestic refining, with the goal of eliminating dependence on foreign gasoline in three years. Obrador also opposes the current system of allowing the market to set gasoline prices, and supports returning to a government-imposed price.

Gulf refineries could supply East Coast as well, but legislation stands in the way

If these measures are implemented, U.S. refiners will need to find a new destination for their gasoline. American refineries have been producing record levels of gasoline, and exported a net 185 MBPD in 2017. Exports are highly seasonal, though, and vary widely between winter and summer. The U.S. was actually a slight net importer of gasoline during the summer last year, but exported large volumes during the winter.

In theory, the U.S. itself could replace most of the demand from Mexico, by simply shipping gasoline from the Gulf Coast to other portion of the country. Historically, Gulf refineries have shipped large volumes of refined products to the Midwest and East Coast, where refineries have historically been unable to supply demand. Facilities in the Midwest have recently displayed the same higher run rates and lower capacity as those in the Gulf, and thus are able to meet local demand for most of the year.

This is not the case in the East Coast, which still relies on imported gasoline to meet local demand. Theoretically, gasoline form the Gulf could be shipped to the East to replace the international imports now used, but constraints on intra-U.S. shipping has made this difficult. The cost associated with using Jones Act ships is greater than the cost of shipping from international suppliers, so surplus gas from the Gulf will likely continue to move overseas in the near future.

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