Authors: L Figueroa,

The Market for Heavy Sour Crude Oil in the Gulf Coast – The PEMEX/PDVSA Duopoly

Contents

1.                              Introduction

2.                              General Considerations
2.1                          The Supply of Heavy Sour Crude
2.2                          The Demand for Heavy Sour Crude: Deep Conversion Plants
2.3                          The Demand for Heavy Sour Crude: Asphalt
2.4                          Transactional Characteristics of the Market for Heavy Sour Crude
2.5                          Economic Drivers of the Market for Heavy Sour Crude
2.6                          The Relative Price of Heavy Sour Crude: Processing Economics
2.7                          How Far Does Asset Specificity Bite? The Limited Substitutability of Heavy Sour Crudes
2.8                          A Summing Up

3.                              The Anatomy of the Market for Heavy Sour Crude Oil in the US Gulf Coast
3.1                          The Supply of Heavy Sour Crude in the USGC Market
3.1.1                    The Main Players
3.1.2                    Mexican and Venezuelan Heavy Sour Blends
3.2                          Market Shares and Patterns of Competition

4.                              Genesis of the USGC Market for Heavy Sour Crude: 1981 – 1986
4.1                          The Birth of the Deep Conversion Market
4.2                          The Heavy Sour Market under the Government Selling Prices (GSP) System
4.2.1                    Vertical Integration as the Antidote for Market Weakness: the PDVSA view
4.3                          The Watershed of the 1986 Price Crisis
4.3.1                    The PDVSA Response to the 1986 Crisis: Vertical Integration, Price Opacity
4.3.2                    The PEMEX Response: Transparent Public Pricing Formulae
4.4                          Conclusions

5.                              The Instruments of Competition in the USGC Market for Heavy Sour Crude: A Comparative Perspective
5.1                          The  Nature of Venezuelan and Mexican Term Contracts
5.2                          The Nature of the Commercial Relationships of PDVSA and PEMEX
5.3                          Downstream Vertical Integration
5.4                          Export Diversification
5.5                          The Nature of Pricing Mechanisms
5.6                          Sequential Authority Mechanisms and the Effective Length of Contractual Relationships
5.7                          Sequential Authority Mechanisms, Reputation and Prices
5.8                          Conclusions

6.                              The Behaviour and Determination of Prices
6.1                          Price Outcomes of Competition in the USGC Duopoly for Heavy Sour Crude
6.2                          A Statistical Analysis of the Price of Heavy Sour Crude in the USGC
6.3                          Effects of Vertical Integration on Venezuelan Crude Oil Prices
6.4                          Distortions Affecting Venezuelan Arm’s-length Prices
6.5                          The Link between Market Structure and Sub-optimised Deep Conversion Capacity
6.6                          Contestability in the USGC Market for Heavy Sour Crudes: the Role of Arab Heavy and Offshore Gulf of Mexico Crudes
6.7                          A Stable two-tiered Duopoly? A Theoretical Exercise
6.8                          Conclusions

7.               Conclusions and Outlook

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