OPIS (Oil Price Information Service) by IHS Markit is the first price reporting agency to calculate implied wholesale gasoline and diesel rack costs in the Mexican fuel market. Offering 2 new price discovery options, you'll be able to get unprecedented price transparency in Mexico's changing fuel markets. 

The OPIS Mexico Fuels Report features landed spot fuel market index and critical news analysis and OPIS Mexico Racks provides retail, implied and posted wholesale pricing in the developing Mexican gas and diesel market with daily rack prices at all terminals in Mexico. 

Rely on OPIS for accurate and transparent price discovery necessary to seize opportunities and tackle challenges across the border. Read on for the latest news....


ExxonMobil and Trafigura Begin Importing Gasoline via Mexico's Tuxpan

October 8, 2020

ExxonMobil and Trafigura began importing gasoline via Itzoil terminal at the Port of Tuxpan in September, two sources told OPIS.

This is the first time private companies imported gasoline via Tuxpan, the closest port to Mexico City. Trafigura began importing diesel and jet fuel earlier this year.

ExxonMobil contracted the 333,500-bbl BSL Elsa to import gasoline into Mexico, the two sources told OPIS. Data from Market Intelligence Network by IHS Markit, the parent company of OPIS, show the vessel arrived at Tuxpan on Sept. 18 after departing Port Arthur on Sept. 13.

Trafigura contracted the 290,000-bbl Marlin Azurite to ship gasoline, the sources added. The vessel arrived at Tuxpan on Oct. 2 after leaving Port Arthur on Sept. 29.

ExxonMobil currently held the position of Mexico's second-largest private importer in August after Valero, moving 40,300 b/d of gasoline and diesel via rail in August, 2,700 b/d less than in the prior month.

Trafigura is also among Mexico's top-10 private fuel importers, bringing 9,712 b/d of gasoline, diesel and jet fuel via different transportation methods in August, nearly half the volume it moved in the prior month.

The two companies join Koch Industries and Glencore as the only private marketers that have offloaded medium-range vessels in Mexico's Gulf Coast.

Koch currently imports fuel into Mexico via Vopak's 464,000-bbl terminal at the Port of Veracruz while Glencore uses Axfaltec's 600,000-bbl marine facility at Dos Bocas, Tabasco.

Shell is also an offtaker at Itzoil's 1.4-million-bbl Tuxpan marine terminal. However, the company has yet to offload its first cargo at the facility.

Valero is expected to join this group as IEnova is in the final commissioning step for its 2.1-million-bbl Veracruz marine terminal in the coming months.

Next year, Monterra Energy is expected to complete the construction of its 2.2-million-bbl terminal in Tuxpan, allowing Total and Repsol also to import fuel into this region.

Neither Itzoil, ExxonMobil nor Trafigura responded to requests for comment from OPIS.

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com
--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Mexico's Pemex Supplies Super Light Crude to 315,000-b/d Tula Refinery

October 1, 2020

Pemex has begun supplying super light crude to its 315,000 b/d Tula refinery as Mexico's oil supply mix becomes lighter, and the company seeks to cut its fuel oil output, sources said.

The state company supplied 13,600 b/d of super light crude oil with an API over 38 to two refineries during August. The Tula refinery processed 10,090 b/d, and the 220,000 b/d Salamanca refinery processed the remaining volume, Mexican government data revealed.

This trend is new and began in May. The trend coincides with the ramp-up in condensate output from the Ixachi field to 14,830 b/d in August from 5,800 b/d in May, according to Mexico's National Hydrocarbon Commission (CNH) data.

In November 2018, former Pemex Upstream Director Hinojosa Puebla disclosed Ixachi's crude would supply both refineries and aid with lightening their crude oil blend.

Pemex didn't respond to comment requests about the trend or if the super light crude supplied came from the Ixachi field, which is located in the southern state of Veracruz.

Ixachi is a technically challenging field with high temperature and pressure at a depth of over 7,000 meters (23,000 feet). Pemex has said the area will supply around 80,000 b/d of 42 API crude by 2022.

Analysts told OPIS that the greater availability of lighter crude oil could help Pemex optimize its refinery's diet blend, cutting its residual oil yield and reduce sulfur content in its fuels.

"Pemex is looking to use the least amount possible of heavy crude oil at Tula ...this is because of the issue of excess fuel oil output," a source close to the state company told OPIS.

The Tula refinery's fuel oil yield has increased as much as 45% in May from an average of about 35% in the second half of 2017. Residual fuel output has become a challenge for Pemex as most of it contains sulfur levels exceeding the International Maritime Organization (IMO) levels for ship bunkering.

The company seeks to reduce the vacuum residue output from Tula's distillation tower to the minimum. This is key as the refinery's hydrodesulfurization and asphalt units are in poor condition, the source added.

Reliability Is Still a Major Problem

Higher availability of lighter crudes will help Pemex, although it's not a solve-all solution, said Felipe Perez, Los Angeles-based downstream research director for the Americas with IHS Markit.

"The benefits from a lighter oil diet won't be reaped if Pemex's refineries struggle with low-reliability levels," Perez said.

Mexico only processes crudes domestically produced, limiting Pemex's ability to maximize its profits by importing the crudes that better suit its refineries and exporting the oil that least benefits them.

Before Andres Manuel Lopez Obrador took power, Pemex procured multiple shipments of Bakken shale light crude oil (40 API) in 2017 to improve Tula's diet. However, the new president didn't continue with the strategy.

The administration of former President Enrique Pena Nieto estimated that by only feeding super light crude to Tula and Salamanca, Pemex would cut fuel oil output in half and reduce its sulfur content to IMO compliance levels.

"Having the most optimal blend won't solve the structural changes the refineries face regarding reliability and maintenance," Perez said.

Mexico's Oil Output Becoming Lighter

The development of Ixachi and other new fields is resulting in lighter crude oil output for Mexico. In August, the country produced a total of 1.7 million b/d of crude oil and condensates versus 1.82 million b/d two years ago.

Mexico is currently producing 150,000 b/d less heavy and 110,000 b/d more of medium and light crudes. During August 2020, the country produced 482,000 b/d of light and condensates (above 31.1 API), 358,400 of medium (22.3 to 31.1 API), and 856,800 b/d of heavy crudes (under 22.3 API).

Mexico industry analysts agreed that as Pemex extracts fewer heavy barrels, Mexico would need fewer light barrels to produce the Maya crude, freeing higher quality grades to produce Isthmus crude to feed refineries.

This shift in crude oil blend led Mexico to export 204,240 b/d of its Isthmus 34 API blend in August from zero barrels two years ago. Meanwhile, the country's exports of the Maya 22 API blend fell to 968,000 b/d from 1.18 million b/d during the same period.

"If this trend continues, it could generate a wider market impact. However, this shift is too small at the moment to produce a major change," said Pedro Martinez, a Mexico City-based energy risk analyst with IHS Markit.

Overall, the future of Mexico's crude oil output seems lighter with newly discovered fields in shallow water like Zama, Saasken and Ilchakil as well as deepwater exploration and development projects such as Trion, Martinez added.

Pemex has announced primary output goals for both Ixachi and its alike Quesqui discovery, which would produce a combined 200,000 b/d of super light crude with an up to 44 API and billions of cubic feet of gas per day.

"Considering the technical challenges, this will be a goal difficult to achieve," said Martinez, adding that, in the case of Ixachi, CNH approved Pemex to drill 24 wells and spend 20 billion pesos ($908.4 million) this year. Still, it has only drilled three and spent 2 billion ($90 million) to date.

The source close to Pemex said it is unlikely that ongoing rehabilitation works at Tula will be enough to bring the refinery's utilization rate to 85%, a level that was last seen in 2010.

"On paper, Pemex has reported a slight cut to its refinery rehabilitation budget, but in reality, there is a greater underspending in maintenance works," the source added.

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service 


Mexico Has Not Sanctioned Suppliers Unable to Comply with Inventory Policy

September 23, 2020

Nearly three months after being enacted, Mexico has not sanctioned any fuel supplier unable to fulfill obligations under the country's Public Policy on Minimum Fuel Inventories (PPMFI), sources told OPIS.

Starting on July 1, the policy requires marketers and distributors to stock five days of sales to end-users. Companies without storage capacity can fulfill the policy via tickets, a financial rights tool that grants them ownership of another marketer's inventories.

Considering Mexico's storage capacity shortages and that most of the existing terminals are under Pemex's control, it is unlikely the whole market will comply with the policy, analysts and suppliers have told OPIS.

CRE did not respond to comment requests from OPIS about the issue.

A fuel marketer told OPIS it has not been able to comply with the PPMFI fully. Still, it has not been notified or sanctioned by Mexico's Energy Regulatory Commission (CRE) to date.

"We have the sense the regulator isn't following with the implementation of the policy," the source added.

The marketer said it had reported monthly the fuel stocks it holds via inventory tickets, although they are not enough to comply with the policy fully.

"CRE hasn't given any clear messages or directions regarding the enforcement of the policy," the source added.

The marketer said complying with the policy has resulted in higher fuel costs to its end customers.

"It is frustrating to think some of our competitors might be offering lower prices because they aren't complying with the inventory policy," the source added.

In July, OPIS had previously reported that complying with the policy could result in fuel prices increasing by 0.2 pesos per liter, a figure marketers agreed with.

Legal firms Ursus Energy and Lexoil told OPIS none of their marketing and fuel distribution clients had been sanctioned for unfulfilling the PPMFI.

The CRE did not respond to requests for comment from OPIS.

Marcial Diaz, Lexoil directing partner, said the regulator had not mapped the steps to take to fulfill the policy or were unwilling to enforce it.

Diaz suspects that one of the reasons why the policy has not been implemented could be that Pemex has not signed ticket contracts with all its clients.

"About 90% of the marketers and distributors acquire fuel from Pemex," Diaz said.

In July, Pemex sent Letters of Mutual Intent to all its clients confirming it has enough storage capacity for them to comply with the PPMFI, adding it would sign ticket contracts within 90 days.

This 90-day period ends on Sept. 30, and Lexoil has not confirmed Pemex had signed any contracts to date, Diaz said.

Santiago Arroyo, CEO of Ursus Energy, said it is likely that CRE will begin sanctioning companies that were unable to fulfill the policy in December.

"The most likely is that the regulator will sanction all the companies that were unable to comply after the enforcement period ends," Arroyo said.

Under the law, CRE could suspend the marketing permit from those suppliers unable to comply with norms and policies.

The lack of sanctions to date could reflect the difficulties the regulatory agency has in conducting oversight over the market, said Pedro Martinez, a Mexico City-based senior energy risk analyst with IHS Markit. OPIS is a subsidiary of IHS Markit.

Since President Andres Manuel Lopez Obrador took power, over half of CRE's staff has been let go amid budget cuts, OPIS has reported.

"If no sanctions have happened to date, it is due more to a lack of enforcement capacity rather than lack of willingness to enforce it," Martinez said.

For the marketer, the uncertainty regarding the PPMFI is one more in a growing list of concerns.

"We live today in an environment surrounded by uncertainty. ... We don't know if our import permits will be renewed nor if our competitors are playing fairly," the marketer added.

--Reporting by Daniel Rodriguez, drodirguez@opisnet.com 
--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Mexico President Lopez Obrador's Party Tables Changes to Energy Reform

September 3, 2020

President Andres Manuel Lopez Obrador's political party has included reforming Mexico's energy reform in its Senate agenda for the upcoming legislative term that would revert monopolistic power back to state-owned Pemex, according to documents seen by OPIS.

The agenda was previously approved on Aug. 31 at the National Regeneration Movement's (Morena) plenary session.

Within the agenda's 429 proposals for the September-January period of the LXIV Legislature's third year includes reforming the Mexican constitution and all the laws underpinning the country's historic energy reform approved in 2012.

Among the energy proposals in Morena's Senate agenda are:

1. Reforming the Pemex Law with the end of strengthening its leadership role in the market.

2. Reforming the Hydrocarbon Revenue Law with the end of relieving Pemex's fiscal framework and thus improve its financial standing.

3. Approving an integral reform to Mexico's energy sector.

4. Reforming Mexico's constitution, the Hydrocarbon Law, the Law of Energy Coordinated Regulatory Bodies.

After approving its legislative agenda, Morena didn't mention any significant changes to the energy sector in its press release or media briefings held on Aug. 31.

Lopez Obrador described the energy reform on several occasions as a pillage against the Mexican people and a giveaway of the country's oil wealth to the private sector.

The president said it would like to return Pemex and CFE's monopolistic position and power in the Mexican energy market.

After winning the elections in mid-2018, Lopez Obrador pledged to keep the energy reform framework until 2021.

This proposal would return state-owned companies Pemex and CFE to their historical monopolistic position in the market, a senior analyst at a major oil company in Mexico told OPIS.

"Morena's proposal could tear any investment confidence the private sector had left in Mexico," the senior analyst added.

An Unpredictable End

The agenda doesn't have the fine print details of these amendments. However, divisions within Morena could create all sorts of proposed changes to Mexico's energy sector, Santiago Arroyo, CEO of Queretaro-based energy consultancy firm URSUS Energy, told OPIS.

Morena has radical and moderate wings. The first wants to close Mexico's door to private energy companies while the latter understands the state can't fulfill all the country's energy needs, the consultant said.

"This is a clash between Venezuela-style socialist and academics and business-minded individuals who support free trade agreement and a North American integration," Arroyo said. "Trying to foresee what could happen is pure speculation," he added.

The Mexico City-based senior oil analyst agrees adding that "depending which segment of Morena wins the debate, proposed changes will take shape as well the possibilities of being approved."

Morena points to the energy reform as the culprit of Pemex's problems. "This isn't true, but it is the way this administration sees it," the senior analyst said.

Pemex lost $18 billion in 2019, and during the first half of 2020, it lost $25.84 billion-$34.3 billion if one includes pension obligations.

Reuters and Bloomberg have reported that the state-owned company is the most indebted oil company in the world, with over $100 billion in debt. Pemex set a record as the company with the bond debt load in history to lose its credit rating-profile was downgraded to junk by Moody's and Fitch Ratings earlier this year.

Pemex lacks the know-how and the financial muscle to explore and develop costly deepwater and shale oil resources where most of Mexico's remaining potential are, analysts have said.

Pemex's oil output crashed from an all-time high of 3.4 million b/d in 2004 to 1.54 million b/d in July, data from the National Hydrocarbon Commission (CNH) shows. Its failing oil output, combined with the doubling of its debt load over the last decade, has left the company with cashflow problems, analysts said.

Amendments Unlikely to Pass

Arroyo said that Morena currently doesn't have the Senate seats to turn back the energy reform.

Morena and his allies control half of the Senate but need 66% of the seats to implement a constitutional reform, Arroyo added.

"They will need to gain the support from the opposition parties-PRI, MC, and PAN-that gave life to the energy reform," he added.

It would be critical to see how the debate around Morena's proposed changes evolves amid the ongoing Pemex scandal, a second oil company analyst based in Mexico City said.

Morena has tabled these changes in its agenda while the former Pemex CEO Emilio Lozoya Austin is investigated for alleged multimillion-dollar corrupt schemes.

At the same time, Lozoya has directly accused former President Enrique Peña Nieto of directing kickback and embezzlement schemes at Pemex with Mexican authorities

The former CEO also alleged Mexican legislators opposing Lopez Obrador received cash bags in exchange for approving the energy reforms.

"Corruption is a major issue for Mexicans, and Lopez Obrador has tried to reverse the reform on this basis," the second analyst said.

At the same time, the country is heading to its mid-term elections next year.

"Historically in 90% of the cases, the president's party loses power during Mexico's mid-term election, and that is the reason why Morena is tabling this proposal now," the senior oil analyst said.

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service



Sharp Drop at Maloob Oil Field Adds to Pemex's Challenges: Analysts

September 1, 2020

Oil production at Pemex's largest offshore field -- Maloob -- dropped 30.8% year over year, pulling the company's overall output in Mexico down to 1.54 million b/d, its lowest level since the 1970s, data from Mexico's National Hydrocarbon Commission (CNH) revealed.

Maloob produced 276,000 b/d of oil in July, down from 399,000 b/d in July 2019 and its all-time peak of 459,000 b/d in April 2018, CNH data showed. Maloob alone produced 25% of Mexico's output in 2018.

Analysts told OPIS the issue increases Pemex's financial challenges after reporting an $18 billion loss in 2019.

"Maloob's production decrease is going to aggravate Pemex's chronic cashflow problems," said Pedro Martinez, a Mexico City-based senior energy risk analyst with IHS Markit. OPIS is a subsidiary of IHS Markit.

Under a new development program approved by CNH in 2018, Pemex expected Maloob to enter a slow terminal decline phase before depleting by 2030, producing 350,000 b/d in 2021 and 275,000 b/d by 2024.

Maloob's primary challenge is a fast decline in pressure. The field's pressure halved to 100 kg/cm2 between 1989 and 2018, according to CNH. Pressure fell significantly despite Pemex injecting nitrogen at the Ku-Maloob-Zaap complex beginning in 2009.

Under the development plan approved in 2018, Pemex expected to increase Maloob's final recovery factor by seven percentage points over its base scenario, ending at 35.3%.

To achieve this, Pemex would drill 22 new wells and implement a water and injection treatment system to boost the field's pressure levels and recovery factor, CNH said in 2018.

Maloob is the largest field in the Ku-Maloob-Zaap offshore cluster, which has been responsible for half of Mexico's total oil output in recent years.

Maloob's challenges put Pemex further away from producing over 2 million b/d of oil and its goal to generate enough revenue to service its over $100 billion in debt and invest in new projects.

In July, Pemex produced in 1.54 million b/d of oil, down from 1.82 million b/d in June 2018, when Andres Manuel Lopez Obrador won Mexico's presidential election race.

A History of Overexploiting Fields

Fausto Alvarez, an independent Mexico City-based energy analyst, told OPIS the sharp decrease at Maloob is worrisome considering the company's precedent with the Xanab field.

"Maloob dropping output by 100,000 b/d in less than a year signals possible mismanagement of the field," Alvarez said. "Pemex has a history of boosting output at other fields to compensate failing production from others," Alvarez said.

Xanab's output dropped 80% over a year, falling to 34,200 b/d from 168,000 b/d between January 2018 and 2019. CNH later ruled that by Pemex's overexploitation of Xanab, water invaded the field. Since then, the company has worked slowly to recover its output, reaching 83,000 b/d in July 2020.

Historically, Pemex has sought to maximize production rapidly without maintaining a long-term plateau, said IHS Markit senior risk analyst Martinez.

"What Pemex did over the last three years was to maximize its current output at expenses of its future," said Martinez.

Maloob's 2018 output exceeded by 100,000 b/d the levels originally expected by Pemex under Mexico's Hydrocarbon Round Zero in 2014.

Between 2009 and 2015, Pemex produced 1 million b/d from new fields, which output rapidly peaked and fell in the years after, Martinez added.

Both Martinez and Alvarez said Pemex's upstream portfolio doesn't have new fields large enough to replace Ku-Maloob-Zaap's diminishing oil output.

The majority of Pemex's portfolio is mature with fields already producing over 70% of their initial proven and probable (2P) reserves, both analysts also said.

"Sustaining a production of over 1.5 million b/d would be an accomplishment for Pemex in the coming years," Martinez said.

A Vicious Cycle

President Andres Manuel Lopez Obrador's strategy to address Pemex's debt profile was to increase its oil output to over 2 million b/d with crude oil prices over $50/bbl, Martinez said.

"However, Pemex faces a lower price environment due to COVID-19 with a reduced oil output level," Martinez said.

Pemex will need further fund transfers from the federal government to recover.

This could also lead to significant capital expenditure cuts that could worsen its upstream operations, Martinez added.

Decreasing output puts Pemex at risk of failing in a vicious cycle, Alvarez said, adding that lower production results in cuts to maintenance and drilling contracts, which further lowers output.

Also, Pemex hasn't adjusted its operational and administrative costs to match its reduced oil output, which prevents the company from being more efficient, Alvarez said.

"When you put the puzzle pieces together... a better future for Pemex doesn't show up in the picture," Alvarez said.

Two years into Lopez Obrador's presidential term, everything related to its strategy to strengthen Pemex has failed, Alvarez said. The company failed to do an accelerated development of 20 fields labeled as strategic by the administration, he added.

"Producing 300,000 b/d from these fields will be difficult to achieve as Pemex significantly overestimated volumes in some of these strategic fields," Alvarez added.

Martinez agreed that these fields would yield a peak output of 200,000 b/d as only three out of the 20 fields have 2P reserves above 50 million bbl of oil under the best scenario.

Pemex has no discovery large enough under development to replace failing production at Ku-Maloob-Zaap, Martinez said. The company has also failed to deliver new discoveries to develop this year, he added.

The Mexican government has stopped saying Pemex will produce 2.4 million b/d and shifted its discourse to say the company will boost its reserves via new exploration projects, he added.

However, the administration has rejected investing in deep water and non-conventional oil exploration projects where Mexico's largest potential resides, Alvarez said.

A Change of Direction Needed

The Lopez Obrador's administration faces a difficult economic and tax collection panorama amid the coronavirus disease 2019 (COVID-19) crisis, making it more challenging to support Pemex, Martinez said.

Mexico already transferred $5 billion in 2019 to capitalize Pemex and reduced its upstream profit-sharing tax duties (DUC) by 11 percentage points, saving the company from paying $5.7 billion in royalties.

Despite these supports, Pemex reported an accumulated loss of $25.84 billion during the first half of 2020. If one includes pension obligations, Pemex lost $34.3 billion to date.

"Mexico's Finance Ministry (Arturo Herrera) already said the country doesn't have more emergency savings under the mattress," Martinez said.

The state company has $11 billion in debt maturing this year as well as $8 billion in bills unpaid to its service providers, according to the company's records, Martinez added.

Additionally, according to local media reports, the company owes several billions to service providers that haven't been recognized yet by Pemex.

"Pemex's situation is worrisome, and drastic measures need to be made to change it," Martinez said. The company will need a financial restructure and a change in its business strategy, he added.

Pemex didn't respond to comment requests by presstime.

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com; Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service


Mexico's Puebla State Plans Bonded Zone for Fuel Storage

July 29, 2020

The Mexican state of Puebla is planning an exclusive customs zone in Huejotzingo to foster the construction of storage terminals and the buildup of fuel inventories, the state's Energy Agency (AEEP) has told OPIS.

"Providing fiscal flexibility can be an important enabler for the construction of large storage facilities," said Rodrigo Osorio, AEEP's head. "This project will make the industry more competitive, improving marketers' cash flow."

The exclusive, or bonded, zone will allow companies to import and store fuel in the area and pay customs taxes only after the product is dispatched rather than introduced into the country, Osorio said.

"Puebla's geographical location gives it a competitive edge to supply the monstrous (fuel) demand in the Valley of Mexico," Osorio added.

Mexico's Energy Secretariat (SENER) data shows this region consumed 227,000 b/d of gasoline and 78,000 b/d of diesel in 2019.

Huejotzingo is located next to Puebla International Airport and 110 km (about 70 miles) from downtown Mexico City. IEnova is building a terminal anchored by Valero Energy in the area, which will have a 900,000-bbl capacity after its second construction phase.

The launch of the 1,700-hectare zone has been postponed by the coronavirus disease 2019 (COVID-19) crisis. Puebla expects to roll out the project in January, as the consultation process with local landowners was delayed amid the pandemic.

According to Osorio, SENER, the Energy Regulatory Commission (CRE) and the Environmental and Industrial Safety Agency for the Hydrocarbon Sector (ASEA) are supportive of the project.

Huejotzingo's location allows access to the main highways in central Mexico.

The area is also connected to the Port of Veracruz via Ferromex's rail network, Osorio added.

Puebla state is working to interconnect Huejotzingo with the KCSM rail network at Tlaxcala state, which would make Huejotzingo one of the few places in Mexico with access to both railways' network, Osorio added.

As part of the project's vision, fuel marketers would turn Huejotzingo into a blending hub to produce the different specifications needed for Mexico City and the surrounding region, Osorio added.

Setting this bonding area will help Puebla reach its goal of having 11 days of fuel inventories and turn the Puebla airport into a key logistics hub thanks to access to low-cost jet fuel, Osorio said.

Storage capacity in the country has been an obstacle for importers and marketers, but the tax system also represents a challenge around fuels storage.

The Special Sales Tax on Fuels (IEPS) for regular gasoline and diesel is set for 2020 at 4.95 pesos per liter and 5.44 pesos per liter, respectively.

However, the administration of President Andres Manuel Lopez Obrador has changed the IEPS rate every week to maintain fuel prices under the inflation rate.

Paying IEPS discourages the buildup of inventories as marketers pay the tax at customs and can recover this expense only after selling the fuel, market participants have told OPIS.

Storing 11 days of gasoline and diesel demand cost marketers 405.4 million pesos ($18.4 million) in IEPS, according to OPIS estimates using SENER demand data.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Constraints Could Lead to Legal Actions Against Mexico's Inventory Policy

June 18, 2020

MEXICO CITY - Without enough access to fuel inventory tickets, companies might declare force majeure or seek legal injunctions against Mexico's Public Policy on Minimum Fuel Inventories (PPMFI), market observers told OPIS.

Mexico will implement its policy starting on July 1, requiring marketers and distributors to store five days of sales to end-users in strategic inventories.

However, Pemex controls most of the country's limited storage capacity.

As a way to fulfill the policy, Mexico's Energy Regulatory Commission (CRE) will oversee a ticket market where marketers and distributors without storage capacity can acquire the financial rights over inventories from another marketer.

If market participants cannot secure tickets, they could resort to declaring force majeure to CRE about their inability to fulfill the terms of the policy, said Rosanety Barrios, a Mexico City-based independent energy analyst, told OPIS.

"No one is obligated to fulfill the impossible," said Barrios, adding that companies would need documented evidence they were unable to secure inventory tickets to make the declaration.

CRE has not published the final rules for the emission of tickets nor the penalties for those unable to fulfill the inventory policy.

"The lack of guidelines is submerging the industry in uncertainty," Barrios added.

OPIS on June 4 reported on a leaked draft of CRE ticket rules that ticket costs and contracting models will be set freely by the market following free economic competition rules. Companies unable to fulfill the policy could get their marketing permits revoked as the maximum penalty after multiple warnings, according to the drafted rules.

The risk of getting permits revoked considering Pemex's dominant market position in the storage market and concerns about open access to acquire tickets is worrying, said Marcial Diaz, director of Mexican energy legal firm Lexoil.

The policy began being implemented when CRE requested companies to voluntarily report their volume of inventories during the first half of June, Diaz said.

Two Mexican fuel marketers told OPIS that it is likely that many companies will introduce injunctions against the PPMFI as those companies with storage capacity are trying to sell their tickets tied to long-term supply contracts.

"Sadly, all energy issues in Mexico are being solved by lawyers in courts and not by policy and energy experts," Diaz said.

Following the law, Mexico's National Regulatory Enhancement Commission (CONAMER) would then review the ticket emission rules considering feedback from market participants.

However, Mexico has released major policy and regulation without holding public consultations at CONAMER such as the Policy on Reliability, Security, and Continuity of the Power System on May 15, curtailing the entrance in the operation of private renewable generation projects, generating opposition from industry and the European Union and Canadian government.

The reliability policy has generated dozens of legal processes by private renewable generation projects that have led to court injunctions against the policy and the government.

"What is happening with renewable energy operators might end up happening with the fuel sector where judges end deciding the fate of new projects, investments, and private market participation," Diaz added.

Under economic competition rules, Pemex should not tie the sale of inventory tickets to other services such as a supply contract, but the state company has offered tickets primarily to its marketers and distributors, Diaz said.

"Pemex is telling competitors to hold on the queue as it is fulfilling the ticket requirements from its associated marketers and branded distributors first," he added. "We will see if COFECE (Mexico's Antitrust Agency) will take cards on the issue and investigate ticket sales."

Another major concern is if fuel import permits granted by Mexico's Energy Secretariat (SENER) will be conditioned to fulfilling the PPMFI requirements, Diaz said.

"At the moment authorities are requiring among other things that marketers have a storage contract to grant an import permit," he added.

The industry is concerned that the PPMFI could curtail competition, pulling Mexico back five years ago to the starting line of market liberalization, Diaz said.

"We will end with a market with different retail stations brands and colors but all being supplied with Pemex fuel," he added.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Mexico's Proposed Regulatory Overhaul Seeks to Shift Fuel Oversight to CNH

June 10, 2020

MEXICO CITY - The oversight of the entire hydrocarbon sector would fall under Mexico's National Hydrocarbon Commission under the proposed constitutional reform by President Andres Manuel Lopez Obrador's MORENA party to overhaul the country's regulatory system.

MORENA Senator and Senate Majority Leader Ricardo Monreal will put forward a proposal on Wednesday to create a super-regulator that will absorb the Federal Anti-Trust Commission (COFECE), Federal Telecommunication Institute (IFT) and Energy Regulatory Commission (CRE).

The new constitutionally independent and autonomous regulator would be named the National Institute of Markets and Competition for Well-Being (INMECOB).

Monreal's proposal will grant INMECOB the oversight of the power market currently under CRE while Mexico's National Hydrocarbon Commission (CNH), which looks only after upstream operations now, would monitor the whole hydrocarbons sector.

"This will grant greater relevance to the executive power (over the hydrocarbon sector), allowing it to exercise its faculties over technical and economic regulation in the hydrocarbon sector, now via the National Hydrocarbon Commission," the proposal indicates.

In the proposal, Monreal stated that President Andres Manuel Lopez Obrador's Fourth Transformation Movement seeks to "reverse the pernicious effects of the called 'Energy Reform,'" and ensure Mexico is self-sufficient in oil and fuel production.

Overhaul Seeks to Create Efficiencies

All regulatory bodies that share "certain characteristics regarding the nature of their faculties and competencies" would be integrated into one, according to the proposal, which aims to modify Article 28 of Mexico's National Constitution.

INMECOB's objective will be to integrate Mexican regulatory bodies and establish a single regulator for the telecommunications, broadcasting, and electricity sectors. As a result, IFT, COFECE and CRE will be disbanded.

The proposal indicates that due to the coronavirus disease 2019 (COVID-19), "all the constituted powers and (bodies) of the Mexican State will help with the inescapable commitment to reduce their operational expenses without giving up the fulfillment of their fines and attributions."

As a result of this fusion, this will reduce regulatory commissioners in Mexico from 21 to five. Mexico's current budget for the three bodies is 2.37 billion pesos and 2,000 employees, with 75% of these resources being allocated at IFT.

INMECOB would end with 1,600 employees and a reduction in its staff and a budget of 1.87 billion pesos, according to the proposal.

The proposal cites as an example to follow the regulatory system in Spain with its creation of the National Commission for Markets and Competition (CNMC) in 2013, which integrated several postal, energy, broadcasting, railway, agricultural among other regulatory bodies.

The constitutional and legal characteristics of IFT, COFECE, and CRE grant them similar functions, procedures, methodologies, and shared knowledge that could be applied by a single institution, the proposal indicates.

The three sectors, telecommunications, broadcasting, and energy, share historical characteristics as they are indispensable for the economy, are natural monopolies, and are provided via infrastructure or network.

Because of these common roots, any economic analysis on electricity, telecom, and broadcasting use the same fundamentals: network infrastructure, externalities, essential goods, open access to systems, complex supply chains, complementarity, reliability and common standards, the proposal indicates, adding that these common elements allow experiences acquired in one sector to benefit others.

IFT and COFECE apply the same anti-trust law, but their independence and different sectors have created different ways of analyzing competition.

"Unifying both authorities will contribute to the creation of a unique standard (for analyzing economic competition)," the proposal said.

This has become a challenge for COFECE and IFT to evaluate the market concentration in the emerging technological landscape with companies like ride-sharing app Uber and food delivery app Cornershop.

By integrating the different bodies, it will prevent the private sector captures regulators under a multi-sector regulator by reducing the relevance of a single industry.

This body will follow the Supreme Court ruling that regulators must ensure efficient markets and provide a level playing field. INMECOB will produce technical norms that are difficult to do via the legislative process, according to the proposal.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Mexico Proposes Major Regulatory Overhaul Joining CRE, ITF and COFECE

June 10, 2020

MEXICO CITY -- President Andres Manuel Lopez Obrador's MORENA party is considering a constitutional reform to overhaul Mexico's regulatory system, including disbanding the Federal Anti-Trust Commission (COFECE) and energy regulatory bodies.

All regulatory bodies that share "certain characteristics regarding the nature of their faculties and competencies" would be integrated into one, according to the proposal introduced by MORENA Senator and Senate Majority Leader Ricardo Monreal.

Monreal's communication team told OPIS on Wednesday that the proposal will be tabled on the Senate today.

The proposal aims to modify Article 28 of Mexico's National Constitution to create the National Institute of Markets and Competition for Well-Being (INMECOB) as a constitutional and autonomous body.

INMECOB's objective will be to integrate Mexican regulatory bodies and establish a single regulator for the telecommunications, broadcasting and energy sectors. As a result, Mexico's Federal Telecommunications Institute (ITF), Federal Anti-Trust Commission (COFECE), and Mexico's Energy Regulatory Commission (CRE) will be disbanded.

The proposal indicates that due to the coronavirus disease 2019 (COVID-19), "all the constituted powers and organs of the Mexican State, help with the inescapable commitment to reduce the expense of their operations, without giving up mode some to the fulfillment of their fines and attributions."

The proposal cites as an example to follow the regulatory system in Spain with its creation of the National Commission for Markets and Competition (CNMC) in 2013, which integrated several postal, energy, broadcasting, railway, agricultural among other regulatory bodies.

The constitutional and legal characteristics of ITF, COFECE and CRE grant them similar functions, procedures, methodologies and shared knowledge that could be applied by a single institution, the proposal indicates.

The three sectors, telecommunications, broadcasting and energy, share historical characteristics as they are indispensable for the economy, are natural monopolies, and are provided via infrastructure or network.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Pemex Might Limit Inventory Ticket Sale Only to Its Clients: Draft Rules

June 4, 2020

MEXICO CITY -- Pemex could condition the sale of inventory tickets related to Mexico's Public Policy on Minimum Fuel Inventory (PPMFI) to the volume of fuel sold to the counterparty, a draft of guidelines seen by OPIS reveals.

The PPMFI requires fuel marketers to hold five days' worth of fuel sales in case of emergencies. The policy is set to be enacted July 1.

"The maximum volume over which tickets can be purchased is the result of calculating the obligation and records of purchases with Pemex (Industrial Transformation)," according to the drafted guidelines.

However, the state-owned petroleum company states in the drafted guidelines that it could offer, or clients could request, volumes different than the ones described above subject to availability.

Pemex will set inventory tickets prices based on the cost of storing the agreed volume under the agreed time. Additionally, Pemex will publish a monthly rate tied to ticket. Payments for the tickets will be made monthly.

Access to storage infrastructure is a major hurdle in Mexico, with most capacity being under Pemex control. Market participants have told OPIS in recent months that they worry about the lack of a mechanism by CRE to ensure open access to inventory tickets by Pemex and other companies, curtailing competition in the market.

The prior administration, of President Enrique Peña Nieto, estimated the cost of the PPMFI could translate to retail prices jumping by 0.05 pesos per liter based on the mandate to hold five days of sales in strategic inventories.

Currently, the average retail price of gasoline across Mexico is 17 pesos per liter, according to the OPIS Mexico Racks Platform. In the case of diesel, the retail price nationwide is above 18.7 pesos per liter.

Tickets can be transferred entirely or partially to a third party only with prior authorization from Pemex under a strict set of guidelines.

Pemex will deliver the fuel to the designated location in the contract in case of an emergency. However, if transportation services are required, these will be subject to availability.

If Pemex fails to deliver the inventory or the ticket holder doesn't want to receive it, the party will have to pay a penalty of 5% of the value of the fuel at the current price.

A ticket contract cancellation will have a penalty where the buyers will have to pay the remaining months of the contracts, the draft guidelines indicate.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


Pemex Has Spent 28% of Funds Set in Its Refinery Upkeep Program

May 4, 2020

MEXICO CITY -- Pemex has spent 28% of the funds set by President Andres Manuel Lopez Obrador's refinery rehabilitation program, according to investment records from Mexico's Finance Secretariat (SHCP).

The upkeep plan was announced shortly after the president took power in December 2018 with a cost of Peso 25 billion ($1.04 billion).

SHCP records show Pemex disbursed Peso 7 billion ($290 million) in maintenance across its six refineries between then and March.

Once works are completed, Pemex will refine 1.067 million b/d in 2021 on average, company CEO Octavio Romero Oropeza said at a congressional hearing in November.

Pemex spent Peso 2.5 billion ($104 million) on the refinery maintenance program during the first quarter of 2020, SHCP records show.

Lopez Obrador wants Mexico to be fuel self-sufficient, he has said. He said Pemex's six existing refineries will process 1.5 million b/d of crude oil by 2021, producing 600,000 b/d of gasoline.

After the company completes the new 340,000-b/d Dos Bocas refinery in 2022, Lopez Obrador has said Mexico will end its reliance on gasoline imports, which supplied 70% of its demand in 2019.

Refineries have suffered a lack of maintenance since the 2013 oil price crash.

Pemex's maintenance spending reached $1 billion that year, declining to $278.8 million by 2019, data from Mexico's SHCP collected by OPIS show.

On April 15, Lopez Obrador said Pemex would process 1 million b/d in May, seeking to cut Mexico's dependency on fuel imports. The company, on its quarterly earnings call, said it processed 640,000 b/d.

In mid-April, Mexico's Energy Secretary, Rocio Nahle, also said Pemex has a 60% advancement of its refinery rehabilitation program, adding that works have been held back by order delays in replacement parts.

Pemex spent Peso 2.44 billion ($101 million) in its maintenance program during the first quarter of the year (1Q20). The Secretariat records show Pemex spent Peso 572.8 million ($23 million) last year on Lopez Obrador's maintenance program.

Pemex in 2019 also spent Peso 4.57 billion on pending refinery maintenance work unfinished by the administration of President Enrique Peña Nieto. So far this year, it has spent Peso 42.38 million ($1.74 million) in the uncompleted program, about 8% of the funds approved this year for these works.

SHCP records indicate Pemex has set a budget of Peso 59 billion ($2.45 billion) for its 2019-2023 refinery maintenance budget, of which it has spent to date Peso 3 billion ($124.50 million).

According to the records, Pemex has spent Peso 2.4 billion ($100 million) in maintenance at the 190,000-b/d Madero refinery since Lopez Obrador took power.

In 1Q20, the company spent Peso 590.4 million at the refinery, 28% of the funds approved for the refinery in 2020 by Mexico's Federal Congress.

According to the Finance Secretariat, Pemex has a 7.79% physical completion of Madero's Peso 10.9 billion 2019-2023 ($452 million) upkeep work program.

Pemex has spent Peso 1.6 billion ($66 million) in maintenance at the 275,000-b/d Cadereyta refinery since December 2018. In 1Q20, the company spent Peso 384.8 million ($15.9 million) at the facility, about 25% of funds approved for the refinery in 2020.

According to SHCP, Pemex has a 5% physical completion of Cadereyta's Peso 8.85 billion ($367.6 million) 2019-2022 maintenance plan.

The company has spent Peso 1 billion ($41 million) in upkeep work at its 330,000-b/d Salina Cruz refinery since December 2018. In 1Q20, the company spent Peso 658.47 million ($27.4 million) at the refinery, about 42% of the funds approved for the facility in 2020.

Pemex has a physical completion of 15.5% of Salina Cruz's Peso 8.5 billion ($353 million) 2019-2022 maintenance program, SHCP indicates.

 

--Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Mexico's CRE Contemplates Halting Non-Pemex Retail Permits: Documents

April 27, 2020

MEXICO CITY - Mexico's Energy Regulatory Commission (CRE) is considering halting the approval of all retail permits except those related to Pemex, according to leaked emails from the regulators seen by OPIS.

In the emails dated April 24, CRE officials state that only retail permits related to Pemex would be granted until commissioners approve new General Administrative Directives in their next governing body session.

A CRE spokesperson said the regulatory body did not recognize the documents.

However, multiple sources validated the existence of the emails and internal discussions about the issue within the commission.

This internal memos follows President Andres Manuel Lopez Obrador's vision for the energy sector, Santiago Arroyo, director of Queretaro-based consultancy URSUS Energy, told OPIS on Monday.

"Both Lopez Obrador and his Energy Secretary Rocio Nahle have expressed their desire to return Pemex dominant position in the retail market," said Arroyo, who specializes in energy law.

"These memos are a worrisome move for the market that could kill competition," he added.

According to a source close to CRE, this initiative has been handled internally by selected high-ranking officials working with CRE commissioners.

"No order has been given to the different divisions inside CRE at the moment to carry these instructions," the source said.

In September, CRE Commissioner Jose Alberto Celestinos told OPIS at a forum that approving permits for retail stations tied with foreign brands could be troublesome for Pemex.

"There were too many permits requests for fuel stations... We have to be careful of not granting too many permits," Celestino said in response to reporters inquiring about why CRE is so delayed on approving new permits for service stations.

Celestinos said that granting permits for service stations tied to foreign brands could be a problem for Pemex to allocate its own product once it ramps up operations at its refineries.

Shortly after, CRE said in a statement that Celestinos' comments did not represent the commission's official position.

The emails raise concerns among market participants as before the coronavirus disease 2019 (COVID-19), sources discussed difficulty in securing CRE approval for new retail permits. Due to the health crisis, regulatory agencies in Mexico suspended all periods to approve new permits.

Before, it would take one month for CRE to approve any retail-related permits for Pemex branded stations, said Arroyo. Meanwhile, permits related to another brand would take three months after considerable back-and-forth.

"They used any excuse, even illogical ones like requesting a comma, to delay granting non-Pemex retail permits," Arroyo said. "Now, with the COVID-19 outbreak, they could simply stop granting permits without needing excuses."

These changes would paralyze Mexico's fuel market, Marcial Diaz, directing partner of Mexico City-based consulting firm Lexoil, told OPIS.

"It is a fact that in the latest CRE meetings, commissioners approved by far more retail permits related to Pemex," he said.

"This is fostering the feeling that in Mexico, there is unfair competition against non-Pemex brands," he added.

Arroyo said the measure violates constitutional rights introduced by the energy reform for consumers to choose their private companies from participating in the fuel sector.

"This could become a dictatorial move that restricts the economic activity," Arroyo said. "We know this is in the pipeline, and we know what is going to happen next," he added.

Daniel Salomon Sotomayor, an associate with the Mexico City-based legal firm González Calvillo S.C., told OPIS that it is unlikely CRE moves ahead with this plan.

"CRE has operated with a certain degree of independence for the last 25 years under a clear mandate to foster competition," Salomon said. "Restricting non-Pemex permits would be against the law and could be prosecuted in courts," he added.

"We are at early stages to know if this plan would become real," said Salomon, adding that if implemented, Mexico's Antitrust Agency (COFECE) could take on this issue.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Mexico's Storage Limitations Posing Obstacle in Current Environment

April 6, 2020

Mexico's limited crude and refined storage capacity presents complications as the country grapples with declining prices and demand for its crude, challenges within its refining sector, and price and currency volatility in importing needed fuels, analysts have told OPIS.

Mexico will need to import fuel with domestic refinery rates struggling and with U.S. Gulf Coast refiners pushing material, but the country has thin storage capacity, said Paulina Gallardo, IHS Markit principal analyst for refining and marketing Latin America. IHS Markit is the parent company of OPIS.

Even with demand declining around the coronavirus disease 2019 (COVID-19), imports will not drop as much as demand as the refinery challenges will leave a larger portion of the market for imported fuels, Gallardo said.

A recent Pemex business plan listed the company's "useful" storage capacity at 15.5 million bbl -- 60% of its nominal capacity.

Beyond that, the country has five more private storage facilities with about 3.7 million bbl of storage capacity, said Rosanety Barrios, a Mexico City-based independent energy analyst.

Gasoline inventories stood at 5,997,000 bbl toward mid-March, according to the most recent weekly data from Mexico's Energy Secretariat (SENER). Diesel stocks totaled 2,584,000 bbl, according to the data.

That data, which typically has a lag of about two weeks, indicated about 10 days' worth of demand in storage, near the country's storage capacity of roughly 15 days' worth of demand, Barrios said.

The state of refined storage levels will require a just-in-time strategy for importers, said Barrios, who previously served as policy director of downstream markets at SENER under former President Enrique Peña Nieto.

Pemex will bring in more imports amid the refinery challenges, Gallardo said, with the country representing a prime target for U.S. Gulf Coast refiners amid dropping demand in Peru and Argentina while Brazil largely supplies its own needs. The state-owned company will continue to bring in product even as smaller players may move to the sideline as the recent volatility in the peso increases the price risk.

"We do not think imports will suffer in terms of demand share," Gallardo said.

Pemex's six refineries processed 464,000 b/d of crude in February, the most recent monthly data showed, the lowest total since December 1990.

That represents an additional obstacle with Mexico vowing to maintain crude production levels, Barrios said. The supply-demand imbalances and price pressure in global crude markets have played out similarly for Mexico, but the country has less of a cushion for those pressures, she said.

"We have the same problem as the rest of the world with crude, but the issue is bigger because of the small storage capacity," she said.

With crude storage levels at about one day of production, produced oil needs to be quickly sold or refined, Barrios said. Crude sales have been a challenge with cheaper crudes at higher qualities available on the market, she said.

That leaves the country trying to refine the crude, a challenge amid the low run rates, limited storage for refined products, and with the refineries producing 20%-30% fuel oil, she added. That then requires the Federal Electricity Commission (CFE) to burn fuel oil for electricity generation as the product sees no other demand and has limited storage options, she said.

The fuel oil output from Pemex's refineries and the lack of market demand and storage for it represents a major challenge in the near term, said David Rosales, a Mexico City-based downstream and midstream partner at Talanza Energy. "Even if they wanted to increase production, they could not because they would need to do a refinery reconfiguration to increase gasoline or diesel output," Rosales said.

Given the current situation, Mexico's Energy Regulatory Commission (CRE) should be keen on reviewing permits for private storage projects and could leverage a strong network that should allow that work to be done remotely during quarantines while still ensuring compliance, he said.

CRE, SENER and the Environmental and Industrial Safety Agency for the Energy Sector had previously suspended processes on new permits until the end of the month.

The current administration has pledged a greater amount of crude to be supplied to the refineries over the next two years, but that decision comes with questions given the operating rate of the refineries and the lack of storage capacity, Rosales said.

"Years and year of not enough investment at Pemex is obviously a part of the problem," Rosales said.

 

--Reporting by Justin Schneewind, jschneewind@opisnet.com;

--Editing by Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service


 

COVID-19: Mexico's Diesel Demand Fell 32% YOY During March's 2nd Week

March 26, 2020

MEXICO CITY-Mexico's diesel demand was struck during March's second week with a year-over-year (YOY) drop of 32.7%, reaching 301,200 b/d as supply chain disruptions and factory closures affected the country's economic activity due to the global economic slowdown caused by the coronavirus disease 2019 (COVID-19).

In 2019, diesel fuel demand for the second week of March was strong at 450,000 b/d, and the second highest on record. However, diesel consumption during the second week of March 2020 was 26.3% lower than the average March 2019 demand, preliminary data from Mexico's Energy Secretariat (SENER) showed.

Industrial regions have been hit the hardest. The auto sector powerhouse of Western Mexico consumed 30,300 b/d of diesel, a drop of 61% YOY. Meanwhile, Northeastern Mexico, home to the country's largest industrial companies, consumed 36,300 b/d of diesel, a YOY drop of 46.6%.

Compared with the first week of March, Mexico's overall diesel demand fell 5.85% or 18,000 b/d as companies like Audi and Honda were affected by supply chain disruptions from Wuhan, the epicenter of China's auto sector. Both companies closed their auto plants during the third week of March, according to media reports.

Sources told OPIS that Mexico diesel demand is being impacted by the direct damage COVID-19 inflicted on international supply chains. In comparison, gasoline demand has fallen 3.7% YOY to 768,500 b/d during the second week of March.

This week's Mexican gasoline demand estimate could be around 645,000 b/d - 18% lower compared with 2019, according to an OPIS analysis based on preliminary sales data from ONEXPO, Mexico's largest fuel retail association.

One of Mexico's leading national fuel wholesalers told OPIS they experienced a significant drop in diesel sales, adding that the demand picture is worse today than at the beginning of the month.

At the time, one of the national wholesaler's new freight clients requested 1/8 of its contracted volume while a passenger transportation company was billing 25% of their usual demand.

"Today, we see the impact on the coronavirus pandemic," the wholesaler said.

"With a rough calculation, we are seeing today a demand drop today of at least 50% compared with a year ago."

A second wholesaler told OPIS that he has also experienced a significant drop in diesel sales. "We aren't going to realize the whole damage until we see consecutive weeks of quarantine."

The most worrisome part about diesel demand drop is that this is just the beginning, Victor Gomez Ayala, deputy director for economic analysis with Mexico City-based brokerage firm Finamex, told OPIS.

"Mexico's industrial heartland hasn't stopped beating, but it is showing clear signs of a COVID-19 infection," said Gomez, who is the former chief economic adviser to Mexico's Revenue Undersecretary at the end of Enrique Peña Nieto's administration.

Despite a lack of strict quarantine measures at the time, the Mexican economy has already been impacted by COVID-19 via the global supply chain. "We don't expect a fast recovery but rather an increasing downward trend in refined products," he added.

Mexico's manufacturing sector is highly integrated with the rest of the world, connected to countries like Germany, Spain, France, Italy, Japan, South Korea, and the U.S, especially Western Mexico, Gomez said.

"Although we haven't seen a lockdown in Mexico, the industry is undergoing a difficult moment," Gomez said. "This is just the start, and we have to see what the local impact will be with the growing numbers of coronavirus and stricter quarantine measures."

A concern related to lower fuel demand is going to be the resulting lower fuel tax revenue collected by Mexico's Federal government via the IEPS tax, he added.

In 2019, Mexico collected via the IEPS fuel sales tax over Peso 297 billion, US $15 billion based on that year's average exchange rate.

"If the fuel demand collapses, which is something likely, one has to consider the important effect this will have in the government excise fuel tax revenue," he added

President Andres Manuel Lopez Obrador has said he won't raise fuel taxes to fulfill his campaign pledge of keeping low energy prices.

"With lower fuel demand, Mexico could compensate some of its lost IEPS revenue via a higher Pemex's fuel marketing margin considering its dominant market position," said Gomez.

OPIS estimated that Pemex's share of the total gasoline and diesel supply represented 84.9% and 66.2% of the national demand in January, respectively, based on government data and customs information on private fuel imports.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com 

--Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service


Preliminary Retail Data Shows Mexico Fuel Sales in March Down 15%: ONEXPO

March 24, 2020

MEXICO CITY -- Mexico's largest retail association has seen a recent cut in fuel sales of 15% compared with the beginning of March, ONEXPO President Ricardo Diaz de Leon said Tuesday at a webcast press conference.

Based on the latest Energy Secretariat (SENER) data, Mexico had a year-over-year (YOY) drop of 5% in fuel demand during the first week of March.

Based on ONEXPO's preliminary sales report, OPIS estimates Mexico's fuel demand could be about 641,000 b/d for the third week of March.

That would be a YOY drop in consumption of 137,000 b/d, or 18%, compared with the consumption for the third week of March in 2019 of 781,000 b/d, reported by SENER.

According to Citymapper Mobility Index, only 30% of residents in Mexico City moved on Monday compared with a year ago, down from 95% two weeks ago.

Meanwhile, TomTom reported Mexico City's morning rush traffic was down 66% points YOY at a 20% congestion level.

In comparison, less than 5% of residents moved in lockdown in Paris, Madrid and Barcelona, according to Citymapper. TomTom reported congestion in the same European cities at less than 10%.

Diaz de Leon told OPIS at the press conference that ONEXPO members are worried about the difficult second half of the year that the sector expects to face.

"The threat of lower fuel consumption is real amid the coronavirus pandemic," he added.

Mexico's largest metropolitan areas -- Mexico City and Guadalajara -- have closed business and asked people to lockdown to cut the spread of coronavirus disease 2019 (COVID-19). On Tuesday, President Andres Manuel Lopez Obrador declared that the country had entered Phase II of the growing number of community-infected coronavirus cases.

Mexico has already suspended classes from March 23 until April 19 to slow down the outbreak. The federal government has also suspended all events with over 100 people and asked people capable of working remotely to do so.

Only under a mass-infection scenario, Mexico would kick in measures such a generalized quarantine across the population. Compared with other countries, "(Mexico) hasn't reached an inflection point in its epidemic curve," Deputy Health Secretary Hugo Lopez-Gatell said Tuesday morning during Lopez Obrador's daily morning press conference.

U.S. retail associations have told ONEXPO they see drops of 40% in demand. In comparison, the retail association in Spain recently has reported fuel sales 60% lower compared with the beginning of the year, Diaz de Leon said.

Retailers are also are worried about the decapitalization they are facing amid the depreciation of their stocks, something that leaves less cash at hand for future inventory, equipment replacements and other expenses expected in the second half of the year, he added.

"We will have to wait until April to see a clear picture of the demand," Diaz de Leon said.

On one side, worries about the coronavirus are driving demand down while some consumers are rushing to fill their cars with fuel amid low prices, Diaz de Leon said.

"In recent days, we have experienced a momentary and sudden spike in demand amid the low prices in the market," he added. Media reports have shown long lines of Mexicans waiting to fill and some station owners reporting sales boosts of 100%.

The average retail price of regular gasoline in Mexico is peso 16.8/L at the moment, down from pesos 19.33/L mid-February, and the average diesel fuel retail price is pesos 16.8/L, down from pesos 21.01/L. Many people are taking advantage of cheaper fuel prices and filling up, believing them to be a momentary trend, Diaz de Leon said.

ONEXPO expects the low-price environment to be extended for the coming weeks with an anticipated drop in the average national gasoline price by an additional peso 0.5/L, based on the recent decrease in international prices.

OPIS assessed the landed price of gasoline in east coast Mexican waterborne ports such as Tuxpan and Pajaritos at peso 2.44/L on Monday, down from peso 8.23/L on Feb. 18, a drop of 70%. Including VAT, federal IEPS and the CO2 tax, the price of gasoline has dropped 43% to peso 8.72/L from peso 15.42/L.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service


Exclusive: Itzoil Gears Up for Start-Up of Tuxpan's First Private Terminal in Mexico

March 24, 2020

Itzoil is gearing up to the start-up of its Tuxpan marine terminal as the facility has received its first two test fuel deliveries, the company told OPIS on Tuesday, making it the first private terminal to operate in the port.

The Hafnia Kirsten, a medium-range tanker, moored at Itzoil's Tuxpan terminal on March 22, according to IHS Markit's Market Intelligence Network (MINT) data.

The tanker was carrying a 38,000-mt clean cargo from the Port of Corpus Christi for charterer Trafigura, according to broker reports.

The Hafnia Kirsten cargo appeared to be the second liquid cargo to unload at the terminal this month. CTT is the registered name of Itzoil's Tuxpan project, which was scheduled to start operating in Q1 2020.

The known offtakers of Itzoil's Tuxpan project include ExxonMobil and Shell.

Trafigura hasn't been confirmed as one of Itzoil's offtakers.

On March 3, the Atrotos, a medium-range tanker, moored at the CTT after loading cargo at the Corpus Christi public oil docks on Feb. 28. The Atrotos performed a partial discharge Feb. 29 at the Vopak terminal in Veracruz before heading to the Tuxpan terminal, according to MINT.

Before receiving the two MR tankers this month, MINT data shows bulk carrier container ships last visited CTT in 2018.

Tuxpan is a critical logistical point in Mexico as it is the marine closest to Mexico City, the country's largest fuel consumption market. The distance between the locations is 290 km (about 180 miles).

Mexico's central region, including Mexico City, consumed in 2019 on average 243,500 b/d of gasoline, 87,000 b/d of diesel and 37,500 b/d of gasoline, government data shows.

ExxonMobil has said it expects to shift the delivery of fuel into central Mexico from rail deliveries to waterborne shipments into Tuxpan, which will then be moved into the region using trucks. ExxonMobil's public relations team in Mexico didn't respond to requests for comment.

Itzoil's Tuxpan marine terminal is part of a larger project named the Tajin Supply System, which includes a 265-km long, 24-inch pipeline and a receiving terminal in Tula, Hidalgo.

ExxonMobil has said the pipeline segment of the project could be online between 2021 and 2023. Project records have previously said that the shipping cost of the pipeline could be 2.965/bbl (peso 0.37/L), depending on the number of offtakers.

The initial pipeline capacity is 165,000 b/d, with the possibility of expanding its capacity up to 330,000 b/d, according to project records. Tajin is the only private refined products pipeline with a regulatory permit granted by Mexico's Energy Regulatory Commission.

The final capacity at the Tuxpan marine terminal is set to be 1.4 million bbl, and the Tula facility is 1.2 million bbl, according to project records.

 

--Reporting by Eric Wieser, eric.wieser@ihsmarkit.com, and Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


Pemex Reg. 87 Rack Prices Near Import Points Fall 8.8%

March 19, 2020

MEXICO CITY - Pemex cut its rack posting for regular gasoline by 8.82% Thursday to peso 12.768/liter in areas next to marine terminals in East Coast Mexico (ECMX).

The company's regular gasoline rack posting has fallen 25% over the last month across its Veracruz, Pajaritos, and Madero terminals.

mexico 0320 1

The decrease of Pemex's rack posting follows a 15.8% drop in ECMX landed spot regular gasoline price from the U.S. Gulf Coast assessed by OPIS yesterday.

OPIS published the settled spot price for landed regular gasoline in East Coast Mexico at peso 3.504/liter, down from peso 4.16/liter yesterday.

After adding Federal IEPS, CO2 tax, and VAT, OPIS assessed the closing spot price of landed gasoline in ECMX at peso 9.95/liter.

This is the first-time the spot price of regular gasoline, including taxes landed in ECMX, breaks the peso 10/liter mark during this low-price environment.

Landed price of regular gasoline in ECMX had fallen 57% since a month ago when OPIS assessed it at peso 8.231/liter on Feb. 19, or peso 15.44/liter, including all related taxes.

Nationwide, Pemex's average rack posting has fallen 10.9% to peso 13.64/liter today for reg. 87 gasoline.

Compared with a month ago, Pemex's average rack prices nationwide have also fallen by 25% compared with Feb. 19.

According to OPIS Mexico Racks, nationwide average regular gasoline retail price was peso 18.08/liter, down 1.64% from peso 18.39/liter yesterday.

In some parts in Sonora, Hidalgo, and Yucatan state, the municipal average has broken the Peso 16/liter floor for reg. 87 gasoline, according to OPIS Mexico Racks database.

Compared with a month ago, the nationwide average price of regular gasoline has fallen 6.96% from peso 19.339/liter on Feb. 19.

Diesel more resilient than gasoline

For diesel, Pemex has dropped the price at its racks near ECMX ports to peso 15.8/liter across Veracruz, Pajaritos, and Madero, down 2.47% from peso 16.19/liter yesterday.

Pemex's nationwide diesel rack prices averaged peso 16.66/liter, down 12.15% from peso 19.96/liter a month ago on Feb. 19.

The price of ULSD landed in ECMX was assessed by OPIS yesterday at peso 5.543/liter, down close to 9% from the previous day closing of peso 6.09/liter.

Compared with a month ago, ULSD prices landed in ECMX from the USGC have fallen 43% since the OPIS assessed price for Feb. 19 of peso 9.829/liter.

Including taxes, the landed price of USGC ULSD in ECMX was peso 11.46/liter yesterday, down from peso 17.89/liter a month ago on Feb. 19.

The average price of diesel across Mexico was peso 20.134/liter down from peso 20.280/liter yesterday.

Compared with a month ago, the nationwide average price of diesel has fallen 4.39% from peso 21.017/liter on Feb. 19.

mexico 0320 2

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Pemex's Gasoline Market Share Drops to 85% in January: Analysis

March 4, 2020

MEXICO CITY -- Pemex's market share continued diluting in January as its total gasoline and diesel represented 84.9% and 66.2% of the national demand reported by the Mexican government, an OPIS analysis revealed.

Pemex sold in Mexico 656,000 b/d of gasoline and 229,000 b/d of diesel in January, company data showed. Meanwhile, the country consumed 748,800 b/d of gasoline and 345,800 b/d of diesel that month.

The differential between the two metrics infers that private companies sold 118,100 b/d of gasoline and 66,200 b/d of diesel in January.

A year ago, Pemex supplied 94% of Mexico's gasoline and 81.7% of the diesel total consumption, based on figures from Mexico's Energy Secretariat (SENER).

Pemex market share has dwindled as international companies and emerging Mexican players have built logistics systems to import product from the U.S. in the past years.

According to SENER data, private companies imported 111,550 b/d of gasoline and 90,330 b/d of diesel in January, a decrease of 2,200 b/d and 1,000 b/d less respectively.

Mexico imported a total of 545,400 b/d of gasoline and 217,950 b/d of diesel in January, according to government data, a month over month (MOM) drop of 16.4% and 17.4% respectively.

The decrease in gasoline came primarily from a cut in imports from Pemex, which dropped its gasoline and diesel imports MOM by 18.8% and 26.1% respectively to 433,860 b/d and 127,620 b/d.

The drops in imports by Pemex did not come in hand with an increase in refined products output, which stayed flat compared with December, according to SENER data.

A potential explanation for the drop in Pemex's imports is a decrease in the country's gasoline inventories, which dropped by over 1 million bbl between Jan. 20 and Feb. 3 to 6.3 million bbl.

The leading private importers of gasoline in Mexico in January were ExxonMobil, Glencore and Marathon Petroleum, according to data by PIERS Enterprise by IHS Markit.

OPIS is a subsidiary of IHS Markit.

ExxonMobil imported 28,980 b/d of gasoline in January, 3,330 b/d more compared with the previous month. Year over year, the U.S. energy giant has grown its gasoline imports by 46%.

Glencore imported 18,240 b/d of gasoline into Mexico in January, 530 b/d more than in the previous month. YOY, the Swiss-trading group increased imports by 240%.

Marathon Petroleum imported in January 15,650 b/d of gasoline according to PIERS. MOM the company brought 3,040 b/d less gasoline while its import doubled YOY.

According to PIERS, the main private diesel importers in Mexico in January were Valero Energy, ExxonMobil and Windstar Energy.

Valero imported 14,445 b/d of diesel in January, a slight drop of 700 b/d compared with the previous month. YOY, the U.S. refiner imported close to 12,000 b/d more diesel.

ExxonMobil imported 12,185 b/d of diesel into Mexico in January, a slight increase of 550 b/d MOM. Compared with a year ago, the company imported close to 3,000 b/d more diesel.

Windstar Energy diesels dropped MOM and YOY by over 1,600 b/d to 8,710 b/d in January, according to PIERS. The El Paso-based fuel marketer is competing against Marathon Petroleum in supplying Mexico's Northwest and Northern regions.

Marathon Petroleum has grown its diesel imports into Mexico to 5,000 b/d in January, a YOY grow of 134%.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

 

Copyright, Oil Price Information Service


Pemex Will Likely Struggle to Produce Premium Gasoline in 2020

February 21, 2020

MEXICO CITY -- Pemex will likely struggle to produce premium gasoline in 2020 due to its lack of funds to acquire catalysts for its refineries, an OPIS analysis of government expenditures reveals.

According to an expenditure report from Mexico's Finance and Public Credit Secretariat (SHCP), Pemex spent $8.8 million in acquiring refinery catalysts in 2019.

According to Pemex's 2019 budget, its refineries needed close to $125 million in catalysts for its reformer, catalytic cracker, hydrotreatment, alkylation, and isomerization units.

Among the catalysts used in these units by the refining industry include cobalt, nickel, platinum, and sulfuric acid-based components.

All the previously mentioned units use catalysts to increase octane, transform molecules, and remove impurities from fuels produced by crude and vacuum units.

Pemex's total output of premium gasoline has been in freefall in recent years, producing 3,600 b/d in 2019 compared with 30,760 b/d in 2014, data from the company reveal. See below graph for more:

mexico news_022420

This demonstrates the difficulties Pemex and Andres Manuel Lopez Obrador's administration face to fulfill their refinery rehabilitation goals, Felipe Perez, IHS Markit Latam downstream director, told OPIS.

"The acquisition of catalysts is expensive, and it's an obstacle in Pemex's efforts to improve its refinery operations," Perez added.

OPIS is a subsidiary of IHS Markit.

In addition to the lack of funds Pemex had to acquire catalysts, the company spent $278.8 million in refinery maintenance in 2019, 47% less compared with the previous year.

A source close to Pemex told OPIS that the company also faces challenges to produce enough feedstock to operate reformer, alkylation and isomerization units.

"Simply, there isn't enough naphtha and other intermediate streams in the refineries to operate those plants... It seems like atmospheric and vacuum units aren't operating well," the source said.

According to Perez, the lack of reformer operation creates double problems as its process produces much-needed hydrogen for other units within the refinery.

Pemex's ability to operate its refineries fell by the brain drain it suffered under Lopez Obrador's austerity plan, John Auers, executive VP at refinery engineering consulting firm Turner, Mason & Co., told OPIS.

"Even in the best of cases like in the U.S., operating refineries is a difficult task," Auers said. "Pemex is undergoing many challenges."

Pemex plans to stop producing premium gasoline all together after August, according to an annual strategic operative program leaked by Mexico City-based newspaper El Universal on Thursday.

Shortly after the story was released, Mexican Energy Secretary Rocio Nahle dismissed it via Twitter, saying Pemex can produce premium gasoline.

"Pemex's (six refineries) in their setup can produce premium gasoline. To do so, they require a high-octane component. ... There isn't a reason to stop producing it," Nahle said.

According to the leaked document, the estimated demand for premium gasoline in Mexico in 2020 is going to be 107,000 b/d.

Pemex expects to produce 500 b/d of premium gasoline on average during the first seven months of the year, according to the leaked report.

Mexico's Expenditure on Catalysts by Refinery in 2019

Cadereyta: Pemex spent $4.7 million on catalysts for the 275,000-b/d Cadereyta refinery, over 10% of resources needed by its hydrotreating, alkylation, isomerization and reformer units.

Tula: Pemex spent $3.2 million on catalysts for the 315,000-b/d Tula refinery, about 7% of the budget required by its reformer, isomerization, alkylation, hydrodesulfurization and MTBE and TAME plants.

Salamanca: Pemex spent $2.3 million on catalysts for the 220,000-b/d Salamanca refinery of the $8.9 million it needs for its reformer, hydrotreatment, sour gas and water sulfur recovery units.

Salina Cruz: Pemex spent no funds acquiring catalysts for the 330,000-b/d Salina Cruz refinery, which needs $7.2 million for its processing and water treatment units.

Minatitlan: It spent no funds acquiring catalysts for the 285,000-b/d Minatitlan refinery, which needs $20 million for its processing and water treatment units.

Madero: Pemex spent no funds acquiring catalysts for the 190,000-b/d Madero refinery, which received $8.3 million under the previous administration to fulfill the needs of its isomerization, alkylation, reformer, and MTBE and TAME units.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service


Pemex's Refinery Maintenance Budget Fell 47% in 2019: Analysis

February 18, 2020

MEXICO CITY -- Pemex's spending on refinery maintenance fell 47% to $278.8 million in 2019 compared with the previous year, according to reports from Mexico's Finance and Public Credit Secretariat (SHCP).

Low maintenance spending last year indicates Pemex's poor refinery runs will continue in 2020, Rosanety Barrios, a Mexico City-based independent energy analyst, told OPIS.

"These numbers reflect the overall underfunding across Pemex," said Barrios, who is the former policy director of downstream markets at Mexico's Energy Secretariat (SENER) under President Enrique Peña Nieto.

Pemex's refinery maintenance budget has not recovered from the cuts introduced by Peña Nieto's administration after oil prices crashed in 2014. The maintenance spending last year represents 40% of the $1 billion it spent on maintenance in 2013, adjusted for inflation and exchange rate at that time.

Pemex's maintenance budget falls short of current conditions of Mexican refineries, Alejandra Leon, IHS Markit's energy analysis director for Mexico, told OPIS. OPIS is a unit of IHS Markit.

"This is a reduced budget considering Pemex refineries haven't been operating at optimal conditions. This is the bare minimum needed on maintenance spending," said Leon.

The typical maintenance spending of a U.S. refinery is $100-$120 million/year.

However, amid Pemex's neglect of basic routine maintenance since 2014, Pemex needs to invest up to $360 million/year by 2023 on each refinery to re-establish its operation to normal levels, according to an IHS Markit analysis.

Last year, Pemex under President Andres Manuel Lopez Obrador focused its maintenance efforts at its 190,000-b/d Madero, 275,000-b/d Cadereyta and 315,000 b/d-Tula refineries, spending $98 million, $65.2 million, and $55.8 million, respectively, on each, according to an SHCP spending report.

Pemex spent $4.2 million on maintenance at its 220,000-b/d Salamanca refinery, $20.5 million at its 330,000-b/d Salina Cruz refinery and $34.9 million at its 285,000-b/d Minatitlan refinery.

In December 2019, Pemex processed an overall 570,000 b/d of crude oil, a year-over-year increase of 11%. Higher runs at the Madero and Minatitlan refineries allowed Pemex to cut its fuel oil yield to 25% in December, down from 38% a year ago.

Madero had multiple shutdowns between March and May of 2019, slowing the increase of its crude intake until reaching 99,000 b/d in December, its highest level since April 2016 with a fuel oil yield of 15%.

Initially, the Mexican Congress approved Pemex to spend over $234 million in 2019 on the Lopez Obrador administration's new refinery maintenance program and $170 million to advance the uncompleted maintenance program started by the former government.

However, Pemex spent $30.8 million, or 13%, of the $234 million assigned to Lopez Obrador's upkeep plan and invested $248 million, or 46% more than the $170 million allocated, on the uncompleted maintenance programs from the former administration.

From the $2.9 billion maintenance program set by Peña Nieto's government, Pemex still has $472 million left to spend to complete it. From this, $182.3 million represent uncompleted works at the Salamanca refinery and $170 million for the Cadereyta refinery.

The maintenance program set by Lopez Obrador's administration has an overall cost of $2.9 billion over 2019-2023 across Pemex's six refineries.

Pemex to Raise Maintenance Budget in 2020

For 2020, Mexico's Congress approved Pemex to spend $640 million in maintenance across its existing refineries. The company expects to process 788,000 b/d of crude oil on average in 2020 as a result of further maintenance works.

Despite the welcomed higher spending on maintenance, that alone will not help Pemex increase the efficiency of its refineries, Barrios said.

"It isn't an issue of funding but execution capacity. Pemex, as a company, faces an ample range of problems," Barrios said.

For example, coking units at Cadereyta, Madero and Minatitlan require not only general maintenance but also replacing entire units, something that can be very expensive, she added.

Higher maintenance expenditures will not solve Pemex's high-sulfur fuel oil yield, which has a negative crack spread of over $20/bbl, Barrios said, adding that Pemex should explore the option of using crude swaps to increase the intake of lighter oil in its refineries.

The increase in the maintenance budget for 2020 is significant. However, it is unlikely to be fulfilled considering the macroeconomic conditions of Mexico and the federal government today, Victor Gomez Ayala, deputy director for economic analysis with Mexico City-based brokerage firm Finamex, told OPIS.

The government already sacrificed spending in areas like social services, health, transportation infrastructure, and the priority for Pemex and the government is on the upstream segment, Gomez said.

Pemex production fell 7.8% to 1.6 million b/d in 2019 compared with the previous year. Simultaneously, total federal expenditure excluding financial costs fell 0.7% annually in real terms while Pemex's expenditure fell 2.3%, Gomez said. Also, the Mexican government spent $6.7 billion from its stabilization fund last year due to a decline in revenue collected, he added.

The administration has a trilemma of boosting public investment in energy, growing social services like pensions and scholarships while avoiding a budget deficit, said Gomez, who is a former chief economic advisor of SHCP's income deputy secretary in Peña Nieto's administration.

The energy reform enabled Pemex to enhance its refineries without spending its capital by partnering with private companies.

"Without joint ventures, the CAPEX (capital expenditure) pressure Pemex has to catch up on maintenance has increased," Gomez said.

"If fiscal conditions worsen, oil output further declines or there is an economic slowdown, it is likely the budget will be balanced by cutting on refinery maintenance," he added.

mexico newsSource: Historical spending by SHCP records, 2020 spending from Mexico's Federal Budget.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service 


Pemex's Market Share in Gasoline Falls to 86.8% in December

February 7, 2020

MEXICO CITY -- Mexico's state-owned oil company, Pemex, saw its market share of total Mexican gasoline sales fall to 86.8% in December, an OPIS analysis of government data reveals.

Mexico's gasoline demand in December reached 844,250 b/d. Pemex reported it sold 733,400 b/d of gasoline during the same month, data from Mexico's Energy Secretariat (SENER) show.

The differential between Mexico's total gasoline demand and Pemex sales in December indicates private companies sold 110,000 b/d, a volume short of total private gasoline imports for the month of 117,000 b/d.

Pemex's market share in gasoline sales has been slowly but continuously fading, considering it had a 99.3% market share over total gasoline sales in Mexico in January 2018. The December market share figures represent declines from 87.2% in November and 94.1% in December 2018.

With the expected initiation of operation of multiple new private terminals in Mexico, Pemex market share over gasoline sales will likely continue falling in 2020.

Despite its decreasing market share, Pemex still has a dominant position in the gasoline market, considering that 35% of Mexico's 13,280 retail stations operate under a different brand.

OxxoGas, Hidrosina, and Petro7, the three largest domestic retail chain brands, have supply agreements with Pemex. The three brands combined have more than 1,000 stations across Mexico.

Foreign brands like BP, Shell, Total, Repsol, and Glencore's G500 still depend on Pemex to supply a majority of their stations.

The number of companies that are independent of Pemex supply is limited. The list includes ExxonMobil, Marathon Petroleum Corp., and El Paso-based Windstar Energy.

Pemex's market share in diesel fell to 69.4% in December, down from 90% in January 2018, an analysis of SENER data reveals. Diesel market share has fallen from 77.9% in November and 79.3% in December 2018.

Mexico's diesel total diesel sales reached 382,000 b/d in December. The differential with Pemex's fuel sales indicates private companies sold 117,000 b/d of diesel in December nationwide.

Private diesel imports for December of 91,300 b/d fall a bit short of the differential between Pemex sales and national demand.

Differential widens in NE, W, and Central Regions

The differential between Pemex's terminal gasoline sales and fuel sales across regions is the widest in the South, Northeast, Western, and Central regions.

The differential between Pemex's reported sales and regional demand could indicate product movements between regions by the state company or market share gained by private companies.

For example, the differential between Pemex's rack gasoline sales and reported demand for the Gulf region is -8.4%, signaling the state company sold 4,200 b/d more fuel than was consumed in the region.

It is likely the fuel Pemex sold at its terminals in Veracruz and Tabasco ended supplying clients in the Southern states of Chiapas and Oaxaca, where the differential was 12,110 b/d (21.9%).

Is also likely that gasoline sold at Pemex terminals in Veracruz ended supplying clients and pump station in states in Mexico's central region, partially explaining the 26,400 b/d (10.7%) differential in sales between regional demand and Pemex sales.

It is important to note that Glencore and Koch Supply & Trading imported a combined 22,000 b/d of gasoline into the Gulf region in December, according to data from PIERS Enterprise by IHS Markit.

OPIS is a subsidiary of IHS Markit.

Fuel imported by Glencore and Koch was likely consumed across the Gulf, South, Southeast, and Central region.

The differential between Pemex's gasoline sales and regional demand in Mexico's northeast was 22,777 b/d (19%).

In the northeast region, 45,850 b/d of gasoline were imported by private companies in December, with ExxonMobil rail shipments representing 56% of the volume.

A significant portion of fuel import registered in the Northeast region ends up being consumed in the West region, where ExxonMobil has 160 of its 250 retail stations listed on its website.

The differential between Pemex's sales and regional demand in West Mexico was 25,700 b/d (16.6%) in December.

Another region where Pemex market share has been diluting is in the Northwest.

The differential between demand and Pemex sales was 12,270 b/d (11.9%) in December.

According to PIERS data, private fuel imports into the Northwest region reached 21,785 b/d in December, with 70% of gasoline imports registered under Tesoro Mexico, a subsidiary of Marathon Petroleum, and the remaining under Windstar.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com

--Editing by Justin Schneewind, jschneewind@opisnet.com

Copyright, Oil Price Information Service

 

Analysis: Mexico Private Imports Closed 2019 With Level Over 200,000 B/D

February 6, 2020

MEXICO CITY -- Private imports of gasoline and diesel fuel into Mexico surpassed the 200,000-b/d level for the first time ever in December, enough volume to supply 17% of the fuel demand reported for that month, Mexico's Energy Secretariat (SENER) data shows.

Higher volumes of gasoline imports helped private suppliers to increase their market share. Non-Pemex gasoline imports reached 117,700 b/d in December, an increase of 10.5% compared with November's and up 180% year over year (YOY).

Meanwhile, private diesel fuel imports were 91,300 b/d in December, an increase of 5% compared with November and up 59.2% YOY. However, diesel fuel imports were lower than the 101,800 b/d all-time peak reported in May.

December's private diesel fuel imports were enough to fulfill 24% of Mexico's distillates demand reported for that month. Similarly, December private gasoline imports were enough to supply 14% of national demand.

Mexico's overall gasoline imports reached 652,500 b/d in December, 0.9% lower YOY. Total diesel imports fell by 15% year over year in December to 264,000 b/d.

Mexico's overall diesel fuel imports fell as Pemex ramped up refinery crude runs by 11% in December to 570,900 b/d compared with the same month a year ago.

Pemex increased its yield of higher-quality fuels compared with a year ago as its 190,000-b/d Madero and 285,000-b/d Minatitlan refineries were operating normally in December. Last year, both facilities were undergoing major maintenance programs.

Both refineries have coking capacity, which helped Pemex to cut its overall fuel oil output by 14% to 127,000 b/d while increasing its diesel fuel output by 23.4% to 122,000 b/d and gasoline by 15% to 200,400 b/d.

The biggest YOY change in Pemex's fuel output was in ultra-low sulfur diesel (ULSD), with production increased by 75% to 57,800 b/d.

As a result of increasing private competition and higher refinery runs, Pemex's gasoline and diesel fuel imports fell 0.9% and 15.3%, respectively YOY.

IHS Markit forecast that Pemex will have a refinery utilization rate of 40% in 2020, processing an average of 640,000 b/d in the current year as it advances significant maintenance.

The state-owned company processed an average of 590,000 b/d in 2019 compared with 933,000 b/d in 2016.

OPIS is a subsidiary of IHS Markit.

Leading Private Importers

ExxonMobil, Windstar Energy, Glencore, Marathon Petroleum, Koch Supply and Trading, Valero, and Novum Energy were behind most of the private gasoline and diesel fuel imports into Mexico.

The seven companies are behind 83.2% of all private imports reported in December, about 164,800 b/d, data by PIERS Enterprise by IHS Markit shows.

ExxonMobil is the leading private fuel importer into Mexico, moving 37,260 b/d in December, an increase of 23% YOY. In total, ExxonMobil moved 33,000 b/d of fuel in 2019 into Mexico, a rise of 51% compared with the 2018 level.

All of ExxonMobil's fuel shipments into Mexico were made using trains crossing via Tamaulipas state. ExxonMobil has 336 Mobil-branded pump stations in Mexico, according to ONEXPO, the country's largest retail association.

ExxonMobil's fuel imports exclusively supply its Mexico retail operations, which spread across the country's northeastern, central and western regions.

ExxonMobil offloads products at unit train terminals in Monterrey, San Luis Potosi, San Jose Iturbide and Tula.

ExxonMobil is a key offtaker at Itzoil's marine terminal in the Port of Tuxpan.

Once the terminal begins operating in the first half of 2020, the company will be able to ramp up imports into Mexico significantly.

Nearly tied in the No. 2 spot of the largest private fuel importers in Mexico are Windstar Energy and Glencore, with 26,400 b/d and 25,540 b/d, respectively, in December.

El Paso, Texas-based Windstar imports fuel evenly utilizing operations across trains and trucks across all northern regions of Mexico. The company has increased its fuel imports into Mexico YOY by 63%. Windstar imported in total 22,500 b/d into Mexico in 2019, an increase of 67% compared with the previous year's level.

Windstar's main entry point to import fuel is Chihuahua, where it crossed 13,600 b/d of fuel, followed by Sonora with 10,000 b/d and Baja California with 3,050 b/d.

The company has supply agreements with nearly 70 retail stations operating under its own Windstar brand. Also, it supplies over 160 stations that operate under different brands such as Phillips 66, 76, Black Gold, G500 and TotalGas.

In 2020, Windstar expects to begin operating two unit train terminals with 270,000 bbl of storage capacity each in Chihuahua City and Hermosillo, Sonora, which will allow the company to grow its fuel distribution and imports capabilities significantly.

Glencore landed all its fuel imports into AxfalTec's marine terminal in the Port of Dos Bocas, Tabasco. The Swiss trading group partnered with Mexico's retail group Grupo 500, to launch its own brand, called G500 Network in 2017.

G500 Network began operating at Dos Bocas in 2018, unloading only 340,000 bbl of fuel across August and September. The company imported, on average, 15,800 b/d of fuel in total in 2019.

G500 Network currently operates 342 retail stations with 150 spread across Mexico City and the state of Mexico. The company also has 40 stations in Tabasco state. The company is developing a marine terminal at the Port of Tuxpan.

However, it is unclear when G500 Network's marine terminal will be operational.

The terminal originally was expected to come online in the first half of 2019.

However, the company disclosed in November 2018 that the project start date would be delayed until 2020.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com

--Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service


Coronavirus, OPEC+, International Trade to Influence 2020 Energy Prices

January 28, 2020

MEXICO CITY -- The decoupling of world GDP and international trade, the spread of the coronavirus and conflicting interests between Russia and OPEC will influence global energy prices in 2020, chief economists said Tuesday.

"It is key to understand that there has been a decoupling of international trade and GDP growth, which has had an impact on global fuel demand," said Antonio Merino, Repsol's chief economist, at the Energy Mexico 2020 Conference in Mexico City.

The global GDP growth is expected to be 3.3% in 2020, while international trade will only rise by 1.1%, impacting global fuel demand, Merino said.

This growth in global GDP can be attributed to a strong service sector compared with a slowdown on the manufacturing industry, he added.

The correlation between world gasoil consumption and industrial output and trade volume is 0.7, Marino said.

"If we don't see a change in international trade, a resolution to the US-China trade war, we probably won't have more gasoil demand in 2020," Merino said.

For Merino, it will be essential to track the spread of the coronavirus that originated in Wuhan, China. Oil demand in the Asia giant has grown from 4.5 million b/d to 14 million b/d in recent decades.

"Any decrease in oil demand from China today has an impact three time bigger than in the past," said Merino.

Sarah Emerson, director of ESAI Energy, said at the conference that the impact the coronavirus could have in global oil demand in 2020 is a decrease of 120,000 b/d.

This forecast is based on the coronavirus being controlled by January with the peak of the impact being in May with a decrease in oil demand of 500,000 b/d during that month, she added.

The impact the coronavirus will have on global demand could go beyond jet fuel as one considers the impact the virus will have on consumption and GDP growth in China, she added.

"We have to see the impact the coronavirus will have on fuel demand in countries that supply the Chinese economy," said Merino, mentioning Vietnam, Thailand, Chile and Brazil.

Ed Morse, Citi's head of commodities research, said at the conference that the impact the coronavirus has had on crude oil prices has been overdone by the markets by $5/bbl.

The mortality rate of the virus is unknown, but if it is similar to SARS, the episode should be done by or before April, Morse said.

If the forecast is correct for the end of the pandemic, during the March OPEC meeting, there will be extending or deepening products to offset the demand decrease triggered by the coronavirus, Morse said.

However, it will be intriguing to see the evolution of the relationship between Russia and Saudi Arabia within the OPEC+ alliance, said Morse.

The sweet spot for Russia is for oil prices to stay around $60/bbl as the ruble appreciates with higher crude oil prices. However, if crude oil prices increase too much, it will affect its economy.

At the same time, the Russian economy has been stagnant since 2015, and the only way it can grow its economy is by boosting oil and gas output as 60% of the country's economy is based on natural resource extraction.

Meanwhile, OPEC nations need oil prices above $70/bbl to accommodate their government spending. "OPEC+ dynamics are going to be interesting this 2020," Morse said.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

 

Copyright, Oil Price Information Service


New Terminals Allow KCS to Export 135% More Fuel Into Mexico in 2019

January 21, 2020

MEXICO CITY -- Kansas City Southern (KCS) fuel imports grew 135% in 2019, benefiting from the entrance in operation of new fuel storage capacity in rail terminals across the country.

The railroad moved 40 million bbl of refined products last year, company data reveals. Of this volume, 52% was gasoline, 30% diesel and the remaining was LPG.

Gasoline shipments registered the biggest annual increase. KCS moved 21.5 million bbl of gasoline in 2019, an increase of 90% compared with the previous year.

During the last quarter of 2019, KCS moved 41,400 carloads of refined products into Mexico, almost twice the volume moved during the previous quarter and nearly 7,000 cars more compared with the same period in 2018.

KCS imports benefited from the entrance in operation of TMM's 300,000-bbl San Luis Potosi storage facility, the completion of a 120,000-bbl new phase at Grupo Simsa's 650,000-bbl San Jose Iturbide terminal.

Bulkmatic didn't immediately respond to an OPIS request to confirm if it began operating its first 360,000-bbl phase at its Salinas Victoria terminal in the greater Monterrey area. The company previously said it was scheduled to come on line in September.

The railroad has previously said that the entrance in operation of new storage facilities would expedite and increase the efficiency of its logistic services compared with transload operations.

The construction of an additional 100,000 bbl of storage capacity at TMM's San Luis Potosi in the first quarter of 2020 will allow the company to continue increasing its import capabilities. KCSM is a partner in the project.

According to a KCS investment presentation, the construction of Avant Energy and Savage's SUPERA network is expected to be completed by the last quarter of 2020.

The SUPERA network is composed of a 1.2-million-bbl facility at the Port of Altamira and a 750,000-bbl unit train storage facility in Queretaro.

In recent years, rail shipments have become a viable option for Pemex and private companies to import fuel into Mexico amid the country's current infrastructure bottlenecks.

OPIS estimates the cost to ship gasoline into Monterrey from Houston with a manifest rail delivery is U.S. 22.76cts/gal, from Corpus Christi to San Jose Iturbide U.S. 24.81cts/gal, and U.S. 29.81cts/gall from Houston to San Luis Potosi.

This assessment includes the rental cost of a tank car and KCS' fuel surcharge rate for January. According to market sources, delivering fuel in a unit train can be 30%-50% cheaper compared with a manifest delivery.

According to PIERS Enterprise by IHS Markit data, companies imported a combined 31.1 million bbl of gasoline and diesel into Mexico, year to November, based on customs reports. Railed gasoline and diesel averaged 95,000 b/d in November, 11.5% of all imports that month.

OPIS is a subsidiary of IHS Markit.

ExxonMobil was the largest importer of railed gasoline and diesel into Mexico, importing 10.9 million bbl year to November, followed by Pemex with 8.3 million bbl and Windstar Energy with 4.8 million bbl.

 

--Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service


China Increases 2020 Gasoline Export Quotas; Mexico Could Benefit

December 31, 2019

OPIS Asia reports that China has issued its first batch of oil product export quotas for 2020 that amounts to over 50% more than last year in a clear nod tothe nation's growing refining capacity that points to intense competition in the new year, industry sources said.

Authorities allocated 28 million mt (176 million bbl) in their first batch, which is a 52.54% increase from the 18.355 million mt (115 million bbl) set aside in the first tranche of last year, according to government notices.

Mexico could benefit from increased Chinese export quotas as Pemex has implemented a diversification strategy to reduce its dependency on fuel imports from the U.S., cutting fuel purchases from American refiners to new low levels.

The state-owned company imported into Mexico 326,000 b/d of US gasoline in September, according to data by the Mexican government. This is the lowest level recorded since data starts in 2016.

Year to October, Chinese fuel exports to Mexico have increased significantly to become Mexico's second main gasoline supplier. Pemex imported 41,150 b/d of gasoline from the Asian giant in the third quarter of the year. Pemex lands Chinese gasoline imports into northwestern Mexico, PIERS Enterprise by IHS Markit data shows.

According to IHS Markit data, China exported 48,600 b/d of gasoline in Q3 to Latin America, which is about 12.2% of its total 397,000 b/d exports during the period.

IHS Markit is the parent company of OPIS.

Similarly, Pemex has also ramped up imports from South Korea, bringing 19,200 b/d of gasoline in Q3 from the country. Pemex has in place a crude for refined products swaps with South Korean refiners. Although, it is unclear if similar agreements are in place with Chinese companies.

China exported 199,666 b/d of gasoline to Indonesia and 41,333 b/d to Malaysia in Q3. However, IHS Markit expects Chinese companies to seek new clients for its product amid the start-up of new refining capacity in southeast Asia.

In total, China issued export quotas in three batches totaling 48.145 million mt (302 million bbl) last year for general use and 7.85 million mt (49.3 million bbl) under tolling deals.

One source called the increase "quite scary," noting that "the crude import quotas are also up so (refinery) runs will go up and exports will grow again."

Theindustry analyst added that refiners in Taiwan and South Korea that target the same overseas markets will be most affected by this move.

Typically following the issuance of the oil product export quota, the government would break it down to the three products, i.e., gasoline, jet fuel and gasoil, but it has so far not done so. For now, the usual players have been given permits to ship products overseas from Jan. 1, 2020.

The allocations are: Sinopec 13.36 million mt (84 million bbl), PetroChina 9.2 million mt (57.8 million bbl), Sinochem 2.79 million mt (17.6 million bbl), CNOOC 2.5 million mt (15.7 million bbl) and CNAF 60,000 mt (377,388 bbl).

The government has yet to allocate export quotas to independent refiners, even those that have already brought onstream highly sophisticated plants that are geared to produce transportation fuels and petrochemical feedstocks.

The explosion of Chinese refining capacity began in the last quarter as the first of several refineries reached full commercial rates earlier this month with at least two other similar world-scale plants due to make the leap next year.

The first of these mega-refineries to crank up its secondary units and reach its full 200,000-b/d capacity was Hengli Petrochemical. Next in line is Zhejiang Petroleum & Chemical Co. Ltd. (ZPC), which this month started its second crude distillation unit (CDU), well ahead of market expectations, the sources said. ZPC has two 200,000-b/d CDUs and numerous secondary units to process medium-sour crudes. The combined run rates of the two crude units have risen to average 60%-70% of capacity, sources said earlier.

Sinopec on its part is due to bring onstream its new 200,000-b/d Zhanjiang refinery early next year after completing construction this month.

Both independent refiners, Hengli and ZPC, have signed term supply contracts with Saudi Aramco to ensure secure feedstock. Aramco agreed to supply 116,000 b/d of crude to ZPC in 2019 under a term contract. It is also taking a 9% stake in the refiner in an effort to extend Aramco's value chain in China's refining and petrochemical sector.

Aramco agreed to supply Hengli 130,000 b/d this year. China's independent refiners were given the first batch of quotas to import 103.83 million mt of crude oil next year. That's an increase of 8% from a year ago, with the bulk of the extra volumes going to companies such as Hengli and ZPC.

 

--OPIS Asia staff report

--Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service

 


Mexico's Fuel Supply Stable During High-Demand Season Amid Challenges

December 24, 2019

MEXICO CITY/WASHINGTON D.C.--Mexico's fuel supply has remained stable despite weather, refinery maintenance, and pipeline shutdown challenges during December's high-demand season.

ONEXPO, Mexico's largest retail association, told OPIS that no fuel supply disruptions had been reported so far in December.

It is unlikely Mexico suffers fuel shortages during this year-end holiday season, Rosanety Barrios, an independent Mexico City-based energy analyst, told OPIS.

"Pemex's logistics system has weak points that become evident during the holiday's period at the end of the year," Barrio said.

However, President Andres Manuel Lopez Obrador's administration underwent a learning curve with the fuel shortages experienced earlier this year as it closed pipelines to fight fuel theft.

"The golden rule that no fuel shortages can happen was learned," she added.

Pemex has built-up fuel inventories and scheduled waterborne and rail deliveries well in advance to this high-demand season, Barrios said.

Yet, market participants have to monitor the peak demand registered during early January, said Barrios, who is a former director for fuel markets at Mexico's Energy Secretariat (SENER).

"If December demand was higher than expected, inventories usually run by January, stressing the supply system as people return to work from the holiday," she added.

Bad Weather Limits Port Operations

According to Pemex's meteorological reports, the ports of Tuxpan and Pajaritos have operated irregularly during December due to bad weather, leaving dozens of tankers waiting to offload product.

Tankers have piled up outside the main ports in east coast Mexico over the past few days, with some as many as 15 days, as bad weather caused port operations to cease because of unsafe conditions, vessel-tracking platform MINT by IHS Markit shows.

As of Tuesday morning, there were 35 tankers anchored outside the Ports of Tuxpan and Pajaritos waiting to discharge cargoes. The tankers combined represent roughly 10.2 million bbl of cargoes.

On Dec. 19, OPIS reported 23 tankers were waiting to offload outside both ports. A source close to Pemex told OPIS that at least 12 of those vessels were carrying gasoline.

IHS Markit is the parent company of OPIS.

Lack of timely data difficult analysis

Currently, Mexico doesn't have timely data on its inventories, demand, or refinery output to analyze its fuel supply balance.

During the first week of December, Mexico had 8.1 million bbl of gasoline in storage, nearly 2 million bbl more than in the previous year, government data show.

Under its Public Policy on Minimum Fuel Inventories, SENER should report every week the country's inventory levels.

Pemex refineries have been undergoing major maintenance work in December, increasing the country's reliance on imports during this high-demand season.

During the first week of December, Pemex's six refineries produced a combined 219,000 b/d of gasoline. At the same time, Mexico imported a total of 700,000 b/d of gasoline.

On Dec. 8, Mexico's energy secretary, Rocio Nahle, disclosed that Pemex was doing major maintenance work at its refinery. Works included a fluid catalytic cracking unit and a gasoline reformer at its 330,000-b/d Salina Cruz, a whole refining train at the 315,000-b/d Tula, and auxiliary units at the 220,000-b/d Salamanca refinery.

Tuxpan-Tula Pipeline Operates Irregularly

Imports at the Port of Tuxpan could have also been affected by the irregular operation of the 173,000-b/d Tuxpan-Tula pipeline.

The pipeline has suspended operations 13 times between Dec. 1-24 amid illegal tapings, government reports show.

The pipeline moves fuel offloaded at the Tuxpan Port into Tula, where it is distributed to Mexico City and the Bajio region via pipeline.

Sources have told OPIS that disruptions at the Tuxpan-Tula pipeline operating also delays the offload of ships at the Port of Tuxpan.

 

--Daniel Rodriguez, Daniel.rodriguez@opisnet.com

--Eric Wieser, eric.wieser@ihsmarkit.com

Copyright, Oil Price Information Service


Uncertainty Grips Mexico After Pemex's Fuel Price Regulation Scrapped

December 17, 2019

Mexico's fuel market has fallen into uncertainty as the country's energy regulator suspended the asymmetric regulation overseeing Pemex's fuel prices.

The Energy Regulatory Commission (CRE) voted late Monday on lifting Agreement A/057/2018, which dictated Pemex's price methodology and discount system.

The regulator didn't explain the reasons behind this measure nor disclosed any norm to replace the suspended agreement.

It is unclear if the preceding regulation, RES/2508/2017, will take place as the agreement (A/57) modifying it was lifted or if a regulatory vacuum will take place to benefit Pemex, multiple sources told OPIS.

Uncertainty has taken over the sector as it awaits CRE to publish the final resolution lifting the agreement in the Government Official Gazette (DOF), a fuel marketer importing fuel into Mexico told OPIS.

CRE approved A/57 in December 2018 shortly after Andrés Manuel López Obrador became president. The agreement sought to limit Pemex's powers as the preceding RES/2508 lacked transparency.

Res/2508 allowed Pemex's price formulas to have a negative K factor, which is set by the company to accommodate for market conditions. With a negative K factor, Pemex could set prices under the international price benchmarks.

Also, Res/2508 didn't dictate how Pemex should allocate discounts received by U.S. refiners on Renewable Volume Obligation (RVO), an U.S. mandate for the fuel sector to include a percentage of biofuels in refined products sold domestically.

A/57 obligated Pemex to give all end-users an 80% discount on the RVO price and put a floor to the K factor of zero.

According to an analysis by Mexico's Anti-Trust Agency (COFECE), the issues related to the K factor and the RVO discounts in RES/2018 could have given Pemex powers to undermine competition.

"If we return to Res/2508, Pemex is obligated to continue publishing its rack prices, and discount program and the market impact will be limited to the negative K factor and RVO discounts," the fuel marketer said.

"However, if this creates a regulatory lagoon, if this is the begging of the end of Pemex's asymmetric regulation, this will be a demotivating game changer for private participation in Mexico," the marketer said.

A source close to Pemex said that the law dictates that Res/2508 should kick in again after the lifting of the modifying agreement. However, this will be defined once the resolution lifting the A/57 is published.

"It is unlikely Pemex will stop publishing its fuel prices. Although, they will be less transparent," the Pemex source said. "What CRE approved yesterday doesn't mean that Pemex is free to set its own prices."

The obligation CRE gave Pemex of providing an 80% discount on the RVO to all end-users was terrible, the source close to Pemex said.

This is as fuel imported from Asia don't have RVO and fuel purchased at cross-border racks in the U.S. don't give an RVO discount, the source close to Pemex added.

The operator of one of Mexico's only five private terminals said the lifting of A/57 is pointless as Pemex's price formula was still obscure and unaligned with international markets.

"We were already submerged in uncertainty on how the Pemex's price formula works," the operator said.

According to an OPIS analysis comparing Pemex's gasoline prices in racks at East Coast, Mexico, such as Progreso, Veracruz, and Madero and USGC spot fuel prices, have a negative correlation of -0.215.

The correlation between USGC spot gasoline prices and Pemex's rack terminals in Veracruz, Progreso, and Madero was -0.215 in October, an OPIS analysis shows.

When USGC spot gasoline prices rose to peso 8.61/liter from peso 8.36/liter over Oct 2-11, Pemex's fuel prices fell to Peso 11.93/liter from 12.61/liter.

A former CRE commissioner told OPIS that the lifting of the agreement is a negative signal for the market, but its impact will be limited.

"Pemex will continue losing clients because its capacity to provide price discounts is limited by its inefficiency and by how many resources it is willing to lose to maintain customers," the former CRE commissioner said.

Also, fuel distributors and retailers will leave Pemex due to the concerns they have with the reliability of the company's fuel supply, the former commissioner added.

Pemex's financial strains will prevent it from maintaining a leading position in the Mexican fuel market, Alejandra Leon, IHS Markit energy analysis director in Mexico, told OPIS.

"Mexico doesn't have a competitive market due to the lack of infrastructure, which prevents more companies from participating," Leon said.

IHS Markit is the parent company of OPIS.

However, once new private terminals come online in 2020 and 2021, Pemex will begin losing its market dominance as competitors will have access to infrastructure to import and distribute fuel, she added.

Despite the uncertainties brought by the lifting of the Agreement A/57, the Mexican fuel market remains an attractive place to invest in the long term, especially considering the decrease in fuel demand in the U.S. amid the energy transition, Leon said.

The agreement A/57 was set to be lifted once Pemex lost over 30% of the market share in the gasoline and diesel market nationwide, something that hasn't happened yet.

Government data shows Pemex sold 688,500 b/d of gasoline in September, 89% of Mexico's total demand. As well, the state-owned company sold 270,300 b/d of diesel during the same month, 79% of the country's total demand.

Pemex has lost market share, especially in border states with the U.S. where companies can bring fuel easily into the country by rail and truck.

In the northwestern region, Pemex wholesale diesel sales have fallen 40.2% since Mexico began allowing private imports in 2017, 25% in the northern region and 29% in the northwestern region.

The company maintains a solid position in the gasoline market as its wholesale sales have fallen 16% in the northwestern region, the biggest drop of any area in the country.

--Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service


Companies: Lack of Guidelines in Mexico's Strategic Inventory Ticket System

December 13, 2019

MEXICO CITY -- Market participants are concerned with the ticket system in Mexico's Public Policy of Minimum Fuel Inventories (PPMFI), feedback provided by companies during the policy's public consultation period shows.

As a way to fulfill the PPMFI inventory requirements, the policy allows companies to acquire tickets for the financial rights to fuel stocks held by third parties.

Companies worry the lack of guidelines could turn tickets into an entry barrier for new players and allow fraudulent transactions to occur.

Last week, Mexico's Energy Secretariat (SENER) published modifications to the country's PPMFI, with market sources saying that those changes disregarded feedback from over two dozen stakeholders supplied via the National Regulatory Enhancement Commission (CONAMER).

The modifications postponed the implementation of the policy until July 2020.

Also, it cut inventory requirements from 2020 to 2024 to five days demand from an incremental goal of 11 and 13 days of demand by the end of the period.

Beyond Pemex, there are only five other private storage terminals currently operating in Mexico. These are Grupo SIMSA's San Jose Iturbide, Vopak's San Juan Ulua, Hidrosur's Progreso, Glencore's Dos Bocas and TFCM's San Luis Potosi. Pemex has expressed previously that it doesn't have excess storage capacity to be able to offer tickets to third parties.

Tickets as Barrier to Entry for Small Players

The ticket system could become an entry barrier for smaller players in the Mexican market, Alejandro Motufar Helu, director of Mexico City-based consultancy Petro Intelligence, told OPIS.

"There is the possibility that tickets will be offered at an overprice with the end of undermining competition," Motufar Helu said.

"Also, there is the scenario that major marketers don't want to emit tickets to other smaller players," he added.

These concerns were also shared by Mexico City-based consultancy group ENIX during the CONAMER public consultation to the modifications.

Competition could be affected by lack of clear guidelines on the ticket system, "as ticket holders could exercise quasi-monopolistic powers on their price and assignment criteria," ENIX said.

During the public consultation, Chevron said due to the lack of Mexico's storage infrastructure, the ticket market would be imperfect, unbalanced and artificial.

"As the Mexican fuel storage market is under development, it doesn't have the elements necessaries for (tickets) to become a viable alternative," Chevron said.

These circumstances could lead to diverse behaviors "contrary to an efficient and competitive market including anticompetitive practices," Chevron added.

This is an opinion was shared by Marathon Petroleum Corporation (MPC) during the public consultation, saying that the lack of storage capacity in Mexico in 2020 could lead to a practical oligopoly.

The PPMFI doesn't have operational guidelines for the ticket market. Without defined offer and acquisition parameters, non-discriminatory access to tickets cannot be guaranteed, Chevron added.

Lack of Rules Could Lead to Fraud

The ticket system requires a transparent emission, transference, commercial, competitive, and non-discriminatory system, MPC said during the policy's public consultation.

"Any system without clear enforcement rules, without adequate traceability and validation could result in a low transparent, corrupt and fraudulent (ticket) mechanism," MPC said.

Marathon said fraudulent ticket transactions could occur in Mexico without clear oversight such as those that occurred in the U.S. with Renewable Volume Obligations (RVO) between 2013 and 2018.

"The lack of clear rules will generate uncertainty, difficult supervision, unjustified penalties," MPC added.

Financial instruments such as tickets are highly specialized instruments and are usually supervised by institutions such as Mexico's National Banking and Derivative Commission, MPC added.

Mexico also must regulate tickets to confirm their validity. Mexico's Energy Regulatory Commission (CRE) could certify inventory tickets like it does with Clean Energy Certificates (CELs), although this could create an administrative burden, Petro Intelligence's Motufar Helu said.

"There is a concern than in a secondary market some agents could falsify coupons and try to sell them," he added.

Potential Solutions to Ticket Concerns

Various stakeholders, including Chevron and MPC, said ticket concerns could be solved by reinstating a previous exception to the PPMFI for companies developing infrastructure that was scrapped by the modifications introduced last week.

The scratched exemption allowed marketers that signed offtake contracts before the end of June 2019 with new terminals to be excluded from having minimum fuel inventories by 2021 if force majeure problems delay the entrance in operation of these projects.

Mexico requires a clear transition mechanism for the PPMFI as new infrastructure is built such as the scratched exemption, Alejandra Leon, IHS Markit energy analysis director in Mexico, told OPIS.

IHS Markit believes there will be an excess of storage capacity in the long-term due to the number of private projects under construction.

If all proposed storage projects in Mexico were built, the country would triple its storage capacity to over 65 million bbl, Leon said.

"The change in the inventory requirements is pressuring the viability of many of these projects," Leon said.

IHS Markit is the parent company of OPIS.

Petro Intelligence's Motufar Helu also considered a solution to ticket concerns is for small marketers or brokers that sell under a set volume of fuel to be exempted from the rule.

"These players will be buying fuel from larger marketers that will probably be fulling inventory requirements," he added.

Marathon Petroleum declined to give further comments to OPIS on the matter. Chevron didn't respond to comment requests.

--Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service



Pemex Boosts Gasoline Imports by 30% in October Amid Refining Challenges

December 4, 2019

Pemex boosted fuel imports in October as its refinery run rates fell meanwhile private companies imported over 100,000 b/d of gasoline for the first time ever, Mexico's Energy Secretariat (SENER) data reveals.

Pemex imported in October 555,160 b/d of gasoline compared with 423,333 b/d in September, which is the company's lowest reported levels of import in 2019, SENER data shows.

From Sept. 30 to Nov. 3, Pemex's overall refining utilization rate was 32% down from 41.1% during the previous four weeks, SENER data shows.

As a result, Pemex produced 182,200 b/d during October, down by nearly 37,000 b/d compared with September, SENER data shows.

Pemex had issues with its 275,000-b/d Minatitlan and 220,000-b/d Salamanca refineries during October, Kent Williamson, IHS Markit director, refining and marketing, Latin America, told OPIS. IHS Markit is the parent company of OPIS.

"Pemex continues to struggle with its refineries. It seems they were gaining momentum in the summer, but they had problems in October," Williamson said.

Salamanca was one of the refineries expected to undergo maintenance during the second half of the year, Williamson said. However, it is unclear if Salamanca's recent drop in refining levels was due to maintenance work or operational challenges, he added.

Salamanca has experienced step decreases since August after operating steadily at a 60% utilization rate over the first half of 2019, Williamson said.

Pemex's overall utilization fell from 44% by the end of September to 26% by mid-October, and it recovered to 35% during the first week of November, Williamson said. "It is unclear if Pemex refineries are struggling or have decreased runs due to planned maintenance," he added.

IHS Markit forecasts incremental improvements at Pemex refineries for the next year, stabilizing at 40%, Williamson said. "We have a steady increase but not the 900,000 b/d (Energy Secretary Roció) Nahle said Pemex would reach by the end of the year," Williamson said.

During the first week of November, Mexico's gasoline inventories reached 5.8 million bbl, 1.67 million bbl more than the same period a year ago.

However, gasoline stocks were down by almost 1 million bbl compared with the numbers SENER reported for the first week of September.

Private Companies Gain Terrain

According to SENER, private companies imported 101,800 b/d of gasoline during October, a new high record. This is 18,000 b/d more than the level of the previous month and three times the levels reported for a year ago.

Private gasoline imports grew thanks to ExxonMobil and Glencore, the two largest importers after Pemex, according to data by PIERS Enterprise by IHS Markit.

According to PIERS, ExxonMobil imported 27,000 b/d of gasoline during October, 7,000 b/d more than the previous month.

Glencore imported 18,000 b/d of gasoline during October, which is 6,400 b/d more than in September, PIERS data shows.

Glencore surpassed Marathon Petroleum to become Mexico's second-largest gasoline private importer, according to PIERS. The U.S. refiner imported 15,700 b/d of gasoline in October into Mexico.

Glencore introduced all imports via its marine terminal at the Port of Dos Bocas, Tabasco, in southern Mexico, PIERS data shows.

Meanwhile, ExxonMobil has worked in partnership with KCSM to ship fuel using unit trains across the Western, Central and northern Mexico.

Marathon offloaded over 12,000 b/d of gasoline at Mexico's northwestern ports of Ensenada, Mazatlan, Topolobampo, Guaymas and La Paz, where it acquired storage capacity from Pemex at its logistic open seasons.

Compared with a year ago, ExxonMobil grew its gasoline imports into Mexico by 108%. Meanwhile, Glencore in October 2018 reported no gasoline imports despite inaugurating its Dos Bocas marine terminal in August of that year.

Mexico's Windstar Energy and Novum Energy have increased their gasoline imports into Mexico significantly year over year.

In October 2019, Windstar imported 11,200 b/d of gasoline and Novum imported 5,900 b/d. Compared with a year ago, they grew imports by 133% and 390%, respectively.

As new terminals have come online, private imports have increased. "Over the last year, companies are also becoming more efficient and streamlining their operations as time pass," Williamson said.

 

--Daniel Rodriguez, drodriguez@opisnet.com

Copyright, Oil Price Information Service

 


Shell to Begin Waterborne Fuel Imports in Mexico in H2 2020: Executive

November 11, 2019

MEXICO CITY -- Shell expects in the second half of 2020 to begin waterborne fuel deliveries in Mexico via the Port of Tuxpan in the country's east coast, a company executive told OPIS.

The company will move product into Tula in Central Mexico via this new position in Tuxpan, said Murray Fonseca, Shell Mexico's downstream lead.

"How much fuel we import will depend on demand, our number of service stations, and our future terminal capacity," Murray said in an interview.

The company began its first fuel imports into Mexico in September, bringing 66,000 bbl (2,200 b/d) of diesel as well as regular and premium gasoline into San Jose Iturbide, Guanajuato.

"That first train shipment was a historical moment for Shell as it was our first fuel import into Mexico," Murray said.

The company expects to import two unit trains per month, he added. A unit train can carry from 50,000 to 100,000 bbl.

"We will see a ramp-up in imports over the coming months," said Fonseca, whose company is moving fuel from Houston using Kansas City Southern's rail network.

A Spot Bajio Fuel Market?

When asked if a spot market could emerge in Mexico's west-central region, Fonseca answered there is a possibility, but it will depend on many factors.

"In the end, all this would be speculation," he added.

In addition to Shell, majors Total, ExxonMobil and Valero are moving product into the west-central region, also known as Bajio.

Fonseca said that private fuel imports would accelerate next year once the new infrastructure is completed. "Companies are looking at opportunities to improve Mexico's logistic system," he added.

"We can play with swaps and tickets. This will happen in the medium term, but first, the infrastructure has to be completed," Fonseca said.

According to data from Mexico's Energy Regulatory Commission (CRE), there are 38 terminal projects under construction with a combined 26-million-bbl in storage capacity.

Rail to Remain Critical for Bajio

Once new terminals come online, the methods of transportation to move product into Mexico will diversify, Fonseca said.

Railway will play a role in supplying products into Mexico in the medium-term as marine terminals and, eventually, pipelines are developed. "Today, the options to import fuel are limited," Fonseca said.

"However, at Bajio, it will be more efficient to bring product via rail rather than trucking it from marine terminals," he added.

Moving production in truck beyond a 200-km radius from marine terminals becomes very inefficient, Fonseca said.

According to PIERS by IHS Markit, private companies imported 2 million bbl of gasoline and diesel into Mexico in September using trains, which is 9% of all fuel imports.

Private companies also imported 1.4 million bbl of fuel using marine vessels and 1.1 million bbl using trucks in September, PIERS shows. This is 11.5% of all fuel imports.

The Rules of the Game Continue

Fonseca sees fuel market liberalization continuing under President Andres Manuel Lopez Obrador. "The foundations, the games of the rules continue in Mexico," he said.

The executive said that Lopez Obrador's administration is introducing general policy and regulatory changes to Mexico's fuel market, but none are significant concerns.

"For me, there haven't been any concern signs," Fonseca said.

When asked about recent changes to Pemex's bulk discount program and its plan to create and operate a new network of retail stations, Fonseca said he welcomed initiatives from competitors as long as they  "create healthy and loyal competition."

Economic Stagnation Hit Fuel Demand

Mexico will probably end the year with a slight decrease in fuel demand amid the economic stagnation the country is experiencing, Fonseca said.

"Due to the fuel supply problems in January ... the demand profile for this year is a bit unusual," he added.

According to the country's National Statistical Institute (INEGI), Mexico's GDP did not grow during the first months of 2019.

Going forward, Shell expects fuel demand in Mexico to continue growing over the next five years along with its middle class, car-ownership rate and income levels.

--Daniel Rodriguez, daniel.rodriguez@ihsmarkit.com

Copyright, Oil Price Information Service


Mexico Restarted US Crude Oil Imports in July: EIA

October 8, 2019

MEXICO CITY -- Mexico imported 500,000 bbl (17,000 b/d) of crude oil in July, the first time since President Andres Manuel Lopez Obrador took power in December, data from the U.S. Energy Information Administration revealed on Tuesday.

Pemex imported 11,000 b/d in October and 23,000 b/d in November of U.S. Bakken leigh shale crude oil from Phillips 66, the first time the company has done so in recent years.

The restart of light crude oil imports could significantly help Pemex increase its refinery utilization rates at three of its refineries, which have a single configuration, preventing them from efficiently processing Mexico's heavy Maya crude oil blend.

These three facilities, 330,000-b/d Salina Cruz, 315,000-b/d Tula and 220,000-b/d Salamanca refineries, produced over 120,000 b/d of fuel oil in August, representing a 35% residual yield, the company's institutional database (BDI) reveals.

Amid a decade-long decrease in output, Pemex's availability of light crude oil has fallen significantly, affecting its single configuration refineries.

Pemex produced 607,000 b/d of light and super light crude oil in August, down from 1.03 million b/d three years ago, the company's DBI reveals.

According to a study from the previous administration of President Enrique Peña Nieto, by only processing light crude, Tula would cut its fuel oil yield by half to 15% compared with processing a blend with 20% Maya heavy crude.

if Tula had only processed light crude oil in 2014, it would have doubled its variable refining margin to $8/bbl, according to the study.

By running a light crude low in sulfur such as the Louisiana Sweet or the Shale Bakken, Pemex would cut its high-sulfur fuel oil output. This would protect the company's refining variable margin of marine fuel specification changes to be implemented in 2020 by the International Maritime Organization (IMO).

Pemex has no funds in place to import crude at its proposed 2020 budget.

However, the company could implement swaps to increase the availability of light oil in its refineries.

Lopez Obrador previously criticized the strategy from his predecessor President Enrique Peña Nieto's administration of importing light crude to boost Pemex's refining margins.

The president said via Twitter in October 2018 that Pemex's light crude imports were additional "proof of the great failure the neoliberal policy... had over the last 30 years."

However, Lopez Obrador changed his rhetoric in January, saying that his administration is assessing importing light crude to process at Pemex's refineries when it was more profitable than buying finished fuel products.

--Daniel Rodriguez, Daniel.rodriguez@opisnet.com

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Shell Begins Importing Fuel Into Central Mexico Using Trains

October 1, 2019

MEXICO CITY -- Shell unloaded its first unit train gasoline shipment into western Mexico on Tuesday at Grupo SIMSA's 695,000-bbl terminal at San Jose Iturbide in Guanajuato state.

As a result, Shell will be able to supply 25% of the fuel demand of its retail stations in the Bajio region. The company has 48 operating stations at Guanajuato, and it is in the process of opening 12 new stations at the moment.

With this milestone, the Anglo-Dutch company joins the club of private companies importing gasoline into Mexico, which includes BP, ExxonMobil, Glencore, Marathon Petroleum, Total, Valero and Windstar.

Private companies were behind 13% of Mexico's gasoline imports in July, according to data from the Mexican government, up from 3.5% a year ago. Companies have been able to gain market share by using unit train deliveries as new marine terminals are under construction.

The company has plans to do waterborne fuel imports into Mexico. However, it didn't say how in a statement released Tuesday.

Shell has at the moment nearly 200 stations across 12 states. It has the plan to create a retail network of over 1,200 stations in Mexico over the coming years underpinned by a $1 billion investment over the next decade for new infrastructure.

"Importing our fuel is a fundamental part of our value chain, and it represents an essential factor to support our growth plans in Mexico over the coming years," said Murray Fonseca, Shell Mexico's downstream director, in the statement.

The company will balance its imports with fuel purchases with domestic partners to ensure supply to its retail stations, Shell said. In the past, the company has said it has a supply contract in place with Mexico's state-owned crude oil company Pemex.

--Daniel Rodriguez, drodriguez@opisnet.com

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Mexico's Pemex Expects to Start 2020 Producing 1.8 Million B/D of Crude Oil

September 24, 2019

MEXICO CITY -- Pemex expects to start 2020 with a production of 1.83 million b/d as it brings new wells online at several shallow water and onshore oil fields, the company's CEO said Tuesday.

"We stopped the production decline, we stabilized it, and we are starting to increase it," Octavio Romero Oropeza said during President Andrés Manuel López Obradordaily press conference.

Pemex so far this year has produced on average 1.69 million b/d of crude oil.

The company produced 1.62 million b/d in January, the lowest level in decades after it had to shut down production due to its inability to load product at ports amid bad weather.

The state oil company expects to bring 100,000 b/d of new production by December as it brings new wells at the Xikin, Xibic, Valeriana, Quesqui, Chejekbal, Manik, Ixachi, Mulach, Cheek, Pachil, Hok, Tlacame, Yaxche and Tetli fields.

On average, Pemex is expected to have a monthly average production of 1.778 million b/d in December, according to a presentation showed by Oropeza.

Pemex's production will decline in early October as it carries programmed maintenance work at its Yuum K'ak Naab floating production, storage and offloading (FPSO) unit at Campeche Bay as well its shallow water Cantarell complex.

As a result, the company will stop producing 1 million b/d of heavy crude oil for the first week of the month. This will be reflected as a monthly average decrease in the production of 33,000 b/d for October, he added.

Pemex expects to increase its hydrocarbon reserves in 2019, the first time it does in 15 years. It will end the year with 2 billion boe of new proven and possible (2P) reserves as well as 200 million boe of new proven (1P) reserves, he added.

The company expects to close 2019 with 7.2 billion boe of 1P reserves, and gradually increase this to 8.4 billion boe by the end of President Lopez Obrador administration in 2024, he added.

--Daniel Rodriguez, drodriguez@opisnet.com

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