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Pemex HSFO fuel oil bound to the U.S. market

Mexico fuel oil exports 2020

- US thirst for HSFO alleviates Pemex's excess
- A tighter global supply of heavy sour crude last year helped Mexico's HSFO

By Sergio Meana and Carla Bass/Argus

Petroleumworld 04 19 2021

State-owned Pemex's excess output of high-sulphur fuel oil (HSFO) has found a significant outlet in the US, helping alleviate one of the company's most pressing problems.

US buyers took in 50,000 b/d of HSFO from Mexico last year, up by 56pc from 2019. Among the most notable destinations was the Houston Fuel Oil Terminal, which took 10,000 b/d according to oil analytics firm Vortexa. Around 4,000 b/d went to Chevron's 340,000 b/d Pascagoula, Mississippi, refinery and 3,000 b/d was sent to Chevron's Port Everglades terminal near the cruise ship center of Miami, Florida. US midstream firm Apex Oil, based in St Louis, Missouri, bought almost five times as much HSFO from Mexico in 2020 about 2,200 b/d as in 2019, although none has arrived at its terminal so far this year, according to Vortexa.

Exports to the US accounted for 28pc of Mexico's 176,000 b/d HSFO outputin 2020, based on Argus analysis of Mexican customs data. And Panama, the UK and the Marshall Islands between them received almost 50,000 b/d of HSFO from Mexico last year.

HSFO was until recently used widely for power generation and as fuel in the shipping industry. But tighter International Maritime Organisation (IMO) caps on the sulphur content of marine fuel and mounting environmental concerns over global CO2 emissions have slashed demand, leaving Pemex with a surplus of HSFO that it has been struggling to offload.

The problem has intensified in 2021, with Pemex's fuel oil output rising by 84pc year on year to 231,000 b/d in January. Only three domestic refineries the 285,000 b/d Minatitlan, 275,000 b/d Cadereyta, and 190,000 b/d Ciudad Madero plants have cokers that can process HSFO into higher-value products.

Scrubbing up

A tighter global supply of heavy sour crude over the past year or so may have helped spur Mexico's HSFO exports to the US, as those relatively close refineries can use HSFO as a substitute for those grades in their cokers even if this creates competition for Mexico's own heavy sour Maya crude.

And the number of ships that have fitted scrubbing technology which enables them to keep using HSFO while complying with the IMO regulations, thereby taking advantage of HSFO's steep discount to lower-sulphur products has almost doubled over the past year, providing the HSFO market with an additional boost.

The increase in HSFO trade has also thrown an unexpected lifeline to Mexican president Andres Manuel Lopez Obrador's strategy to boost output of domestic refined products at the expense of imports.

And the government has floated proposals to redirect HSFO to state-owned utility CFE's power plants, as a way of dealing with the surplus. Such a strategy would represent a reversal of the shift away from fuel oil in power generation under the previous administration, in favour of cheaper imports of cleaner gas by pipeline from the US.


By Sergio Meana and Carla Bass from Argus Media
04 16 2021



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