January 5, 2011 / 5:28 PM / 7 years ago

Mexico heavy crude exports to hit 15-yr low in 2011

* Heavy crude consumption at domestic refineries to jump

* No supply increases expected from aging Mexican fields

* Tight heavy crude supplies could weigh on US refiners

By Robert Campbell

MEXICO CITY, Jan 5 (Reuters) - Exports of Mexican heavy oil will fall to the lowest level in 15 years in 2011 once a local refinery is upgraded, which could hit the profitability of U.S. refiners emerging from the bruising 2008-09 market downturn.

The start-up of a major refinery project will cut Maya heavy crude exports by some 110,000 barrels per day this year, according to government data.

The decline in Maya exports could pressure top Mexican crude oil customers like Valero Energy Corp (VLO.N), Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N) who have seen their profit margins squeezed by lower supplies of heavy crude that is cheaper but more difficult to process.

State oil company Pemex [PEMX.UL] expects to complete a long-delayed expansion of its Minatitlan refinery on the Gulf of Mexico by the end of the first quarter, which will boost domestic Maya demand by 110,000 barrels per day, government data shows.

Mexican Maya exports averaged 968,000 bpd over the first 11 months of 2010, down from a peak of 1.621 million bpd set in 2004, according to the data.

Shipments last year could have been even lower but for a string of local refinery problems that cut operating rates to their lowest since 1990.

“Less Maya is not good for margins,” said a U.S. Gulf Coast oil trader with a large oil refiner who declined to be named.

“Supplies are already tight with less coming from Venezuela and refiners are starting to raise (processing) rates which will push up demand for heavy barrels,” he added.

Credit Suisse estimated refining margins on the U.S. Gulf Coast were $9.80 a barrel last week, up from $6.30 a year ago. [ID:nSGE7020AW]

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For a factbox on Maya crude click on: [ID:nN05232734]

For a graphic click on: r.reuters.com/fyj84r

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MEXICO REFINERY UPGRADES

Although Mexico depends on oil exports for about a third of government revenues, the export reduction will not hurt its finances as Pemex should have to import less gasoline and diesel to meet domestic demand.

Mexico embarked on a plan to overhaul its domestic refineries to boost motor fuels production and increase their ability to process heavy crude at the start of the last decade.

The expansion and modernization of Minatitlan, the third refinery to be overhauled, will increase local refinery capacity by 150,000 bpd when it starts up.

But Mexico’s heavy reliance on fuel imports -- Pemex buys more than 40 percent of Mexico’s gasoline from overseas refiners -- has led the government to order the construction of a new refinery that is set to be operational by 2016.

The new refinery, which would also run Maya crude, could push up domestic Maya demand to 900,000 bpd by 2016, which could even lead Mexico to have to import some of heavy crude if it does not make new discoveries, analysts warn.

The government has said oil production will remain around 2.5 million bpd through 2012 but has not produced any detailed long-term oil output forecasts since the end of 2008. (Editing by Marguerita Choy)

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