Column: Mexico oil swap a response to Saudi price war (complete article) by Dr. Daniel Fine <-- For the complete article use this link

Since the Organization of Petroleum Exporting Countries has imposed a price war upon Southwest shale oil producers, there have been efforts to come up with a counter-strategy. Since San Juan Basin oil is light and tight (along with the region) is there a market in North America for it? As projects are underway for the export of natural gas to Mexico for Liquid Natural Gas, or LNG, conversion for overseas markets primarily in Asia, until now no parallel strategy surfaced concerning oil. Mexico is prepared to take the ultra-light crude oil for blending purposes into its Mayan heavy and sour.

So far, the discussion is over Mexican ocean-based refineries taking 100,000 barrels of our light oil in a swap for 100,000 barrels of their heavy for U.S. East Coast refineries.

The swap can be a physical exchange with tankers delivering to Mexico and picking up cargoes of Mexican heavy.

Any heavy Mexican oil purchased by U.S. refiners displaces foreign overseas imports from Saudi Arabia and Venezuela. This emerges as a North American counter to the OPEC oil price war. Now Mexico and the United States have a common market interest in a swap of oil between them. There are historic and strategic origins that surround the swap transactions. First, the change in Mexico towards oil and gas ownership and investment is itself a significant, if not radical, shift from exclusive, anti-foreign government control (enshrined in its 1938 Constitution) towards an opening to private foreign exploration and production companies. American companies are prominent among applicants to the first auction. PEMEX, Mexico’s state monopoly company is prepared to take partners who deliver capital and technology to increase production.

It is this historical change that must be conscious in the Swap strategy. The “Swap” transaction is part of a new southward emphasis on PEMEX and Mexico in a North American market. Earlier, Canada was the northern emphasis only in contrast to an anti-foreign PEMEX controlled by government policy. Canadian market acceptance of U.S. investment was reciprocal under American mining law since the 1920s, although sidetracked briefly by Canadian resource nationalism.

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Reads like a great idea to me.

That and Keystone.

Combined they read like the beginnings an 'Oil Producing North American Countries' (OPNAC) trade agreement in answer to OPEC.

To me it looks reasonable / like the right thing to do.


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