Mexico expects U.S. oil swap, another crack in crude export ban

By David Alire Garcia and Valerie Volcovici

MEXICO CITY/ WASHINGTON, March 25 (Reuters) - Mexican state oil firm Pemex expects imminent approval from the U.S. Commerce Department to allow it to swap up to 100,000 barrels of heavy crude for a similar amount of lighter U.S. oil, what could be the latest milestone toward loosening the four-decades old ban on exporting U.S. oil.

"Our expectation is that it happens soon," Jose Manuel Carrera, CEO of Pemex's commercial arm P.M.I. Comercio Internacional, said in an interview Friday. "I would like to see the approval tomorrow, or I would have liked to see it yesterday, but the truth is that this is a permit that the United States unilaterally approves."

The Commerce Department's Bureau of Industry and Security, which oversees the process, on Wednesday declined to comment on the application.

The Mexican company hopes swaps will pave the way for the United States to eventually allow for direct crude oil exports to Mexico, an exemption it allows for Canada. In January, U.S. crude exports to Canada reached an all-time record, according to the U.S. Energy Information Administration.

U.S. law allows swaps of crude on a case-by-case basis with "adjacent countries" based on "convenience and increased efficiency of transportation."

Pemex announced in January it had asked for permission to import up to 100,000 barrels a day of light crude and condensates to mix with its own heavier crude at domestic refineries in exchange for heavier Mexican crude for processing at U.S. refineries. The swap would be the first since the late 1990s, when the two neighbors conducted an exchange of crude from the U.S. Strategic Petroleum Reserve.

Sources familiar with the process said the approval has taken longer than expected because the BIS has asked for assurances that Pemex has specific U.S. buyers to take the equivalent amount of Mexican crude in return. That requirement would prove that the Mexican oil is part of an additional contract, not crude that is already being imported into the U.S.

Carrera said Pemex does not need to export any new crude to the United States to satisfy the requirements of the swap because "there are many Mexican barrels of crude that arrive at the United States that are not part of a fixed-term contract ... that arrive on a spot basis."

Pemex CEO Emilio Lozoya told Reuters in an interview in Davos in January that Mexico could start importing light crude from the United States within two to three months of eventual approval by U.S. authorities.

For Mexico, allowing swaps is seen as vital to improving hemispheric trade and strengthening Pemex as the country implements new energy reforms.

"Any effort that allows for the further integration of complementary energy markets is a good thing, particularly given the current price environment and Mexico's desire to reform its own energy sector," said Antonio Garza, former US Ambassador to Mexico and counsel at White and Case in Mexico City.

The Pemex decision is being closely watched by nearly two dozen U.S. senators, who see permission to allow the swap as an opening to broader reform of the American ban on exports of domestically produced crude oil.

Twenty-one senators, led by Republican Senator Lisa Murkowski of Alaska and Democratic Senator Heidi Heitkamp of North Dakota last month sent a letter to Commerce Secretary Penny Pritzker calling on the BIS to approve the pending swap request.

They also urged the Obama administration to go beyond approving swaps and allow direct exports of crude oil to Mexico as a matter of national interest.

"We encourage the current administration to follow President Reagan's example by issuing a similar finding that United States oil exports to Mexico - for consumption in Mexico - are in the national interest," they wrote.

For Murkowski, raising awareness around the issue of swaps and opening up exports to Mexico are part of a longer-term effort to build support for the United States to drop the ban completely, a campaign she began in early 2014.

"Senator Murkowski is steadily building the case and letting the American public get comfortable with the fact that these swaps and exports are beneficial for our national security and economy," spokesman Robert Dillon said.

Other countries, such as South Korea and European Union members, will also keep an eye on the Mexico decision since they have been keen to buy U.S. crude oil.

The Commerce Department showed its first signs of opening the door to crude exports in 2013 when it started granting permission to some companies to export minimally-processed ultralight crude oil called condensate.

U.S. companies including Enterprise Products Partners , Shell (LSE: RDSB.L - news) and Pioneer Natural Resources (NYSE: PXD - news) have all gotten confirmation from BIS to export condensate. (Additional reporting by Ana Isabel Martinez and Timothy Gardner; Editing by Bruce Wallace and Grant McCool)