On Air Now

Listen

Listen Live Now » 94.1 FM Jackson, Michigan

Weather

Current Conditions(Holt,MI 48842)

More Weather »
49° Feels Like: 49°
Wind: W 0 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Tonight

Clear 52°

Tomorrow

PM Thunderstorms 74°

Wed Night

Isolated Thunderstorms 54°

Alerts

Analysis: Latin America grows increasingly hooked on U.S. fuel imports

Two engineers with Mexico's state owned oil company, PEMEX (Petroleos de Mexico), watch work on an oil platform in the Sen oil field, in the
Two engineers with Mexico's state owned oil company, PEMEX (Petroleos de Mexico), watch work on an oil platform in the Sen oil field, in the

By Marianna Parraga

HOUSTON (Reuters) - Despite its own vast oil reserves, Latin America has doubled its reliance on the United States for fuels like diesel and gasoline over the last five years to keep its economies humming - and the dependence is growing.

The culprit is an outdated refining network that has not been upgraded to add capacity as growth has surged across much of the region.

Though Latin American leaders spent much of the last decade opening markets in Asia and in some cases distancing themselves from Washington, the rising fuel imports show they still must tap the United States for crucial supplies.

Latin America's dependence on the United States for refined fuels is growing at the same time that U.S. reliance on foreign oil falls thanks to an unprecedented boom in domestic production and falling fuel demand.

While Latin American countries have planned to build some new refineries, they are a long way from coming to fruition.

The 12 Latin American countries that are the biggest importers of U.S. fuels have bought an average of 1.36 million barrels per day in 2013, twice as much as 657,000 bpd in 2008, according to the Energy Information Administration (EIA).

At the same time, crude shipments from Latin America's top producers - Mexico, Venezuela, Ecuador, Brazil, Argentina, Peru and Guatemala - to the United States have fallen 18.6 percent since 2008 to 2.4 million bpd. Only Colombia has posted significant gains.

The fuel import bill for the 12 countries was about $65 billion in 2012 at spot prices, eating up about 6 percent of their export receipts, according to data from central banks. That was up from 3.4 percent in 2008.

The uptick was primarily caused by booming demand for fuel - from new electrical generation plants that burn diesel to new car sales in some countries that grew at double-digit annual clips. Imports are expected to rise even more.

"Most of the planned new refineries in Latin America have not even finished the detailed engineering design," said Ramon Espinasa, leading oil and gas specialist for the Inter American Development Bank. "A regional recession is not expected in the short term, so a projected 20-25 percent rise in fuel demand must be fully met with imports."

Latin American fuel demand is expected to reach 9 million to 10 million bpd by 2020 after rising 2 to 2.2 percent a year for the next seven years, according to the International Energy Agency, the Organization of the Petroleum Exporting Countries (OPEC) and the EIA. The region's demand growth would be the world's fastest after Asia and the Middle East.

Even though projected annual upticks in demand would be slower than the 2.6 percent annual rises posted since 2004, all new Latin American demand must be covered by imports because the region lacks surplus refining capacity.

DELAYED REFINERIES

Added imports are costly because most of them are made via tenders on the open market - meaning countries cannot easily negotiate preferential prices, traders said.

The region aims to limit its growing dependence on fuel imports by adding more than 2 million bpd of new refining capacity from 2015 to 2021, according to industry experts.

But construction work on numerous plants has been delayed several times as costs escalate into the billions of dollars. Plans to modernize existing refineries have also been postponed.

Among numerous failed or delayed projects in the region, Ecuador's new 300,000 bpd refinery on the Pacific Coast has run into a series of financing problems despite partnerships announced with Chinese and Venezuelan companies.

With a budget of $12.5 billion, construction has advanced only 1.6 percent since ground was broken five years ago, according to state-run Petroecuador's website.

"Latin American refineries are buying residuals and intermediate fuels to feed refineries that have unplanned stoppages or to cover the incremental demand of diesel and gasoline," a trader said.

He added that buying finished fuels from U.S. refineries is easy for Latin America because its close proximity to plants on the U.S. Gulf Coast ensures quick delivery.

DISTILLATE-DRIVEN DEMAND

Venezuela, which has the world's largest crude reserves, became a net fuel importer last year after a series of refinery woes. With generous subsidies creating the cheapest gasoline in the world, rising imports are leaving state-run Petroleos de Venezuela (PDVSA) with a costly bill.

The Venezuelan case is not unique. Hard subsidies in parts of the region - so large in some cases that companies cannot cover production costs - can prevent oil companies from investing more in refineries.

A good portion of the imports are diesel and gasoline.

Imports of finished and reformulated gasoline were 225,000 bpd in 2013. Mexico, Chile, Colombia, Brazil and Venezuela together took around 60 percent of all U.S. gasoline exports.

The five countries also increased their imports of diesel and gasoil over the last five years by 142 percent to 375,000 bpd. Globally, U.S. exports of diesel grew 96 percent in the same period.

Deutsche Bank said in a note to clients that U.S. gasoil exports to Latin America have jumped 13 times since 2002, with Mexico and Chile the biggest buyers.

Some of the purchases are tied to electricity shortages in Venezuela, Argentina, Brazil and almost all Central America and the Caribbean.

The countries are introducing thermoelectrical plants - fueled by diesel, fuel oil and natural gas - to have power during long droughts that diminish hydroelectric output.

Other fuels imported by Latin America include intermediate products for refineries, liquefied petroleum gas, and more than 20 products mostly for motor vehicles.

"Latin America is likely to remain a destination for increasing volumes of U.S. Gulf refined product exports going forward," Deutsche Bank said.

(Editing by Terry Wade, Jonathan Leff and Matthew Lewis)

Comments