In 1992, Mexico City had just eight days with air rated “good” by the city’s air quality monitor and in 1999 it was named “the most dangerous city in the world for children” by the global environmental policy organization, World Resources Institute, because of its smog.
But by 2012, Mexico City saw 248 “good” air quality days, and while many changes led to this improvement one in particular has been a bonanza for American oil companies, according to industry experts: Mexico’s embrace of low-sulfur diesel.
In the U.S., diesel fuel use is limited primarily to locomotives, construction vehicles, and heavy-duty trucks. But elsewhere in the world the efficiency and power of a diesel engine make it a popular choice in passenger vehicles. Unfortunately, it’s also exceptionally dirty. When burned it produces lots of tiny, toxic particulates, like those that spoiled Mexico City’s air. Happily for the U.S. oil industry, global demand for diesel fuel, combined with rising air quality standards, has created an opportunity to cash in on two priorities that are usually at odds: environmental regulation and expanded petroleum exploration.
Emissions filters don’t work well on traditional diesel engines: the sulfur in the exhaust gums them up. So in 2006 the US Environmental Protection Agency mandated a solution: all new diesel vehicles in the U.S. would have to run on Ultra-Low Sulfur Diesel, known as ULSD, starting in 2007. Companies looking to sell diesel in the U.S. tweaked their refineries and mastered the process of extracting sulfur from the fuel. The change worked: vehicles running on ULSD showed a 90% decrease in emissions.
At the same time that the EPA was regulating the sulfur in diesel fuel, the fracking and horizontal drilling revolutions led to an oil and gas boom, putting the U.S. on track to become the world’s biggest producer of oil and natural gas, both of which helped with ULSD production. U.S. crude oil—including that from fracking—tends to be lower in sulfur to begin with than crude from places like Mexico and the Middle East. Moreover, the hydrogen produced as a byproduct of natural gas drilling is a key ingredient in de-sulfuring fuel. Add to that the decrease in American energy use thanks to decreased driving and increased fuel-efficiency, and refineries suddenly had more free capacity to produce ULSD.
The final variable in the ULSD export equation was overseas demand, which came as countries around the world moved to clean up urban air. Between 2009 and 2012, US exports of ULSD to the Netherlands, a major importing hub for the EU area, nearly tripled. Over the same period exports to Chile, which has the most stringent clean diesel requirements in Latin American, quadrupled. Mexico passed a requirement that low-sulfur diesel be available in the country as of 2009, but the state-owned oil company has yet to build up the capacity to refine it for the domestic market. The result: U.S. exports of ULSD to Mexico more than quadrupled, from 25,000 barrels per day in 2009 to 109,000 barrels per day in 2012.
“It’s pretty much one of the most broadly exported commodities that we have across the globe,” John Felmy, chief economist of the American Petroleum Institute, told TIME. In 2010, the US exported only about 300,000 barrels of ULSD a day; by the summer of 2013 it was exporting more than 1 million barrels daily. In January 2010, the total value of ULSD exports from the United States was about $402 million, according to the energy market intelligence service Platts. In just the month of July 2013, the US exported ULSD worth more than $4.2 billion.
ULSD export growth is not expected to slow down. Industry analysts at Hart Energy project global consumption of ULSD will grow by 20 percent between 2012 and 2015, and by more than 20 percent through 2020. Mexico’s air quality is still “consistently below the WHO guidelines and often failing to meet its own regulations,” said Amanda Maxwell of the Natural Resources Defense Council. As Mexico and other countries move to clean up the air, the sulfur content of diesel is likely to become the subject of even more aggressive regulations, which is one set of government rules the American oil industry will be glad to see.