Latin American oil producers mull light crude imports to cut costs

HOUSTON Thu Aug 28, 2014 5:49pm EDT

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HOUSTON Aug 28 (Reuters) - At least three oil-producing Latin America countries may soon start importing cheap, light crude to replace costly purchases of refined products, ending decades of crude self-sufficiency.

State-run companies in Mexico, Venezuela and Argentina have said they are considering importing light crudes.

Those could be blended with domestically-produced heavy crudes so they can be more easily exported, or be used to improve the crude diet of old refineries that lack enough deep conversion capacity to transform heavy oil into light products such as gasoline and diesel.

Latin American countries are scrambling to curb rising costs for fuels, used mostly for transportation and power generation, that have weighed on budgets as demand grows.

The fuel is often purchased on the open market at a hefty markup. Those outlays could be slashed by entering crude supply contracts and tapping into surging output of light crudes, some of them from the U.S. shale oil boom.

Though the crude imports could help trim public expenditures, they could also cause political headaches as the countries have enjoyed crude self-sufficiency for almost a century. These nations jointly produce some 6.4 million bpd.

"This commercial agreement is intelligent because Pemex is upgrading its refineries to process more heavy crude and they are trying to increase utilization rate in the meantime", said

Luisa Palacios, from Medley Global Advisors in New York.

Venezuela is different.

"Imports are now a necessity for PDVSA to be able to export more heavy crudes. Politically, it is a decision difficult to explain."

Mexico's Pemex said on Thursday it wants to start light crude imports later this year, potentially reaching 70,000 barrels per day (bpd) through a swap mechanism with companies that must be approved by the U.S. government.

PEMEX said it is also in talks with other countries to guarantee light crude supplies for its refining network.

That came a day after Reuters revealed Venezuela's PDVSA may import Saharan Blend from Algeria's state-run Sonatrach to mix it with its own extra heavy crudes from the vast Orinoco belt. The imports would be a stopgap measure until long-delayed equipment projects known as upgraders come to fruition.

Venezuela has not said when the imports from its OPEC-ally would start or what the volumes would be.

Algeria's Saharan Blend, a light sweet crude with 45 API degrees, is currently sold $40 cents below Brent.

Mexico and Venezuela, Latin America's largest oil producers alongside Brazil, which has long imported crude, expect the oil imports to be temporary until they modernize and expand their refineries and upgraders.

Argentina has also announced it is trying to save costs by replacing fuel imports with planned light crude purchases through 2015, after its fuel import bill hit 13-$15 billion..

"These imports could be temporary if the countries solve their refining and upgrading problems, but they won't end in the short term," said Alejandra Leon from consultancy IHS. (Editing by Terry Wade and Grant McCool)

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