Texas Has an Oil Problem

There are fears oil supplies to Texas could be negatively impacted after a report found U.S. oil refineries along the Gulf Coast have reduced purchases from Pemex, the Mexican state-owned oil company, after discovering its Maya crude contained up to six percent water.

The claims were first published on Monday by Bloomberg, though Pemex director Víctor Rodríguez Padilla insisted the issue is "not something particularly serious at this time" during a press conference on Wednesday.

Newsweek contacted Pemex and Texas Governor Greg Abbott for comment via email on Thursday outside of regular office hours.

Why It Matters

According to the U.S. Energy Information Administration, as of January 2024 Texas had 34 working oil refineries, constituting nearly a third of America's total refining capacity. Data from Statista shows the three largest oil refineries in the U.S. are all in Texas, in Galveston Bay, Port Arthur and Beaumont, producing 631,000, 626,000 and 609,000 barrels of oil per day, respectively.

Consequently any interruption to oil supplies could have a significant impact both on the Texan economy and on the availability of oil more widely.

What To Know

Citing several sources, Bloomberg reported a number of Texas refineries have moved away from using Mexican oil after discovering the Maya crude they received from Pemex included up to six percent water, around six times the industry standard.

According to Bloomberg a number of oil refineries in Texas and Louisiana have complained about the quality of Pemex oil, some of which they believe is unfit to produce gasoline. Instead they have reportedly been turning to suppliers in Colombia and Canada.

President Donald Trump has been threatening to impose a 25 percent tariff on goods from Canada, though he indicated there could be an exemption for oil. However, oil supplies could still be impacted by any retaliatory sanctions from Canadian authorities.

Oil imports from Mexico to the U.S. fell to a 35-year low in January linked to problems at the nation's largest refinery, Dos Bocas, which is currently offline. Mexican President Claudia Sheinbaum said "bad weather" has contaminated oil supplies with salt risking damage to the refinery if it continued operation.

Speaking at a press conference on Wednesday Pemex's Padilla played down the difficulties facing the company, commenting: "There are mechanisms, there are techniques to reduce salinity and to reduce water in crude oil. So, at this time, I said publicly that there was a problem with that line and Pemex is doing everything it has to do to be able to solve the problem.

"It has happened on other occasions at Pemex and it happens to other oil companies around the world, it is not something particularly serious at this time."

What People Are Saying

Professor Robert Kaufmann, an expert in world oil markets at Boston University told Newsweek: "Crude oil comes in many 'flavors,' sweet or sour, heavy or light, etc. and these 'flavors' influence the price for a specific crude oil. I am sure that refiners will pay a lower price for crude oil from Pemex if it contains more water because the water increases the cost of refining the crude oil and reduces the quantity of useful products, such as motor gasoline, generated."

Paul Beaumont, an economist at Florida State University, told Newsweek Pemex should end up paying the cost for any substandard oil it provides.

"Typically, it is the exporters responsibility to get the water content below 1 percent before shipment," he said. "If not, the importer's refinery must do it, which effectively increases the cost of the imported crude. Since the U.S. is a net petroleum exporter to Mexico, there are several ways to recover those costs.

"Padilla is correct in the sense that the U.S. does not import that much crude from Pemex (about 11 percent of our imports) and the excess water issue is not too frequent. However, it could become serious for Pemex in the sense that they will end up paying the costs one way or another."

Professor Grant Wach, at expert at Dalhousie University's Department of Earth and Environmental Sciences, told Newsweek the issue should be "solvable."

He commented: "I am a geologist, not a reservoir or production engineer but from my knowledge and experience in the energy sector, this is a solvable problem. Most fields that oil is produced from have water. Oil floats on water, and natural gas lies above the oil, being lighter.

"The amount of water within the oil varies depending on the field. It can also vary dependent upon the production rates. By this I mean that if you produce too quickly by pumping, the 'drawdown rate,' you break through the base of the oil and produce increased water underlying the oil."

What Happens Next

It remains to be seen whether Pemex can reduce the quantity of water in its Maya crude down to levels Texan refineries deem are acceptable. If not, the reduced supply of oil from Mexico to the U.S. could be extended, impacting both oil supply and potentially price in the Lone Star State.