Last week's edition of This Week In Petroleum focused on domestic drivers of increased U.S. petroleum product exports, including weak U.S. demand and increased production due to higher refinery runs. To better understand international trade flows, factors affecting imports at the recipient's end of the trade must also be taken into account. This week, we look at U.S. product exports from the point of view of the single largest recipient of those exports, Mexico.
The trend in Mexican imports for total petroleum products is a mirror image of that in the United States: at the same time U.S. total product exports have grown, Mexico's gross product imports have also grown. Based on data from the International Energy Agency (IEA), Mexico's product imports increased about two-and-a-half times between 2003 and 2011. Earlier last decade, imports had been trending lower, but the subsequent robust gains have more than offset that contraction.
Gasoline has consistently made up the bulk of Mexican product imports. Gasoline's share of Mexico's total product imports has been trending up in recent years, with gasoline representing about two thirds of total product imports in 2011. Imports of distillate, Mexico's second largest product import, rose almost tenfold from their 2004 level to about 135,000 barrels per day (bbl/d) in 2011. In contrast, fuel switching to natural gas cut into imports of residual fuel oil, which fell from nearly 120,000 bbl/d in 2000 to less than 20,000 bbl/d in 2002. They have since remained relatively steady, slipping further to a low of 10,000 bbl/d in 2010, but inching back up to 25,000 bbl/d in 2011.
Geographic proximity, declining U.S. consumption, and rising Mexican import requirements make Mexico and the United States natural trading partners in refined products. Just as Mexico accounts for the bulk of U.S. product exports, so, too, does the United States top the list of Mexico's suppliers. But rising product flows between the two neighbors are not just a story of serendipitously matching U.S. supply capabilities and Mexico's import requirements: at the margin, the United States also gained market share in Mexico by displacing other suppliers. And while the drivers of Mexican import growth vary product by product, it would be misleading to assume that underlying demand trends fully explain the country's rising import requirements. That was broadly true early on, but more recent Mexican import growth primarily reflects production problems at domestic refineries.