Juan Guaidó and the crisis in Venezuela: how can Mexico benefit from US sanctions

The sanctions of Donald Trump's government on PDVSA, Venezuela's state oil company, represent an opportunity for Mexico to increase its export of crude oil to the United States. But filling the eventual market vacuum is not easy.

Photo: Teletrece
Photo: Teletrece

The sanctions of the United States government to the state company Petroleos de Venezuela S.A. (PDVSA) threaten to deepen the crisis in the South American country. But there is one actor that can benefit from the situation: Mexico.

The US government ordered Monday to freeze PDVSA's profits, some US $ 7 billion, as a way of putting pressure on the president of Venezuela, Nicolás Maduro, in favor of Juan Guaidó, the president of the Venezuelan National Assembly who on 23 June January self-proclaimed "president in charge" of the Andean nation.

PDVSA currently sells to Citgo, its subsidiary in the United States, 500,000 barrels per day of hydrocarbons, almost half of what it exports worldwide.

For its part, the largest production of Petróleos Mexicanos (Pemex) is heavy crude, similar to the one Venezuela exports to the United States.

The decision of the Trump government closes the door to the import from Venezuela of this hydrocarbon, which produces 4% of the refined petroleum products consumed by Americans.

It is a market that can occupy Mexican crude, say specialists such as David Shields, director of the magazine Energía a Debate.

"If Venezuelan oil is not there, some spaces can be opened in the market for the Mexican Maya crude (the name for the heavy type variety)," the consultant tells BBC Mundo.

Citgo distributes its products in 5,300 service stations. The sale of fuel represents one of the main foreign exchange earnings for Venezuela.

Pemex extracts an average of 1.7 million barrels of hydrocarbons per day, of which 55% is heavy crude oil, according to company data.

Refining this oil variety is an expensive process, and for Mexico, it represents an additional problem as its refineries were built for light crude.

According to the president of Mexico, Andrés Manuel López Obrador, more than two decades ago the budget was reduced to modernize these facilities.

"It was like a deliberate plan to break Pemex," he says.

That is why the total crude production cannot be refined in Mexico and the country has to export it, especially to the United States, its main market.

In 2018, 60% of crude oil production was exported to that country, according to Pemex financial reports.

Most of the heavy oil was sent to the refineries on the US coasts of the Gulf of Mexico, where most of that hydrocarbon variety is processed.

There, precisely, in Lake Charles, Louisiana, is the largest of the three refineries of Citgo.

It is, in fact, the sixth largest oil facility in the United States.

The crisis of PDVSA and its US subsidiary represents an opportunity for Mexico, insists David Shields.

But occupying that market is not easy. Pemex does not have the capacity to increase its crude production, and therefore it could not raise, for now, the level of export to the US market.

"It is a significant volume that PDVSA can stop exporting to the United States, and Mexico could not cover it", says Shields.

Fabio Barbosa, from the Institute of Economic Research of the National Autonomous University of Mexico (UNAM), agrees.

"Mexican production is on the edge," Barbosa tells BBC Mundo. "The country can not cover the fall of Venezuelan hydrocarbons."

Thus, the alternative is to divert part of Pemex's sales to the Far East, where some of the oil company's new clients are located.

In 2018, exports to that region were 311,000 barrels of hydrocarbons per day.

According to the National Hydrocarbons Commission, the countries with the largest purchases of Mexican crude are, in that order, India, Japan, and South Korea.

"Part of what is being exported to the Far East can be destined for the US market," explains Shields.

An incentive for this strategy is the profit margin since the cost of sending crude oil to US refineries is lower. Also for Venezuela, it can be an opportunity.

"The crude that PDVSA sends to the refineries in the Gulf of Mexico can send it to the Far East, for me it would be the logical exchange."

BBC Mundo asked Pemex if it analyzes increasing its exports to the United States, and take advantage of the market that eventually will free the Venezuelan oil company.

There was no answer.

The original text of this article was published by the Teletrece at the following address: https://www.t13.cl/noticia/negocios/bbc/juan-guaido-y-la-crisis-de-venezuela-como-puede-mexico-beneficiarse-de-las-sanciones-de-estados-unidos-sobre-pdvsa