The Changing USGC Heavy Crude Market

Driven by decades of massive investments in coking and hydrotreating expansions, the U.S. Gulf Coast (USGC) consumes a large percentage of the global heavy crude output. The investment was driven in turn by the rapid growth in production of this type of crude in the Latin American nations of Mexico and Venezuela. This growth began in the 1980s and accelerated during the 1990s, with most of this crude heading to refineries on the USGC. Over the last 20 years, both production of and imports from Mexico and Venezuela have in turn slowed, peaked and fallen significantly from each of those countries. In fact, the proportion of heavy crude imports from those two countries has declined from 85% of the USGC total in 2007 to 56% in 2017. While Mexican imports have stabilized over the last three years, Venezuelan declines have only accelerated as the political and economic situation in that country continues to deteriorate rapidly. With the appetite for heavy crude on the USGC remaining strong and additional declines in Venezuela expected, this is creating opportunities for other countries to increase their exports to the U.S. This report looks at these dynamics, along with other external factors (such as the impending IMO bunker regulations in 2020), that will create a continually evolving heavy crude supply picture for USGC refiners.