Mexico Still Depends on U.S. for Fuel

ALEXANDRIA, Va.—Mexico currently imports 74% of all of its fuel, with 91%  coming from the United States. That situation is not likely to change soon despite the Energy Reform implemented by Mexico three years ago, according to a new report released by the Fuels Institute.

This finding is due to Mexico’s anticipated growth in fuel demand (4.4% over the next 13 years) and a 50% decrease in domestic refinery production over the past six years that is not expected to be reversed soon. 

The report, “Mexico’s Energy Reform: Impact of Mexico’s Deregulation and Liberalization of the Fuels Market,” can be downloaded from the Fuels Institute at no charge. It analyzes the country’s current and future fuel needs, distribution and retail infrastructure, regulatory programs and composition of the vehicles market and considers the impact of Energy Reform.

“In the North American fuels market, Mexico is a significant player, sending more than 500,000 barrels per day of crude oil to the United States and importing back more than 30 million barrels per month of refined product,” said John Eichberger, executive director, Fuels Institute. “The Energy Reform represents a significant resetting of the Mexican market with direct implications, not only on market participants and consumers in Mexico but also on the country’s trading partners. How this new market structure performs will be a critical factor for transportation energy on both sides of the border.”

Mexico began implementing its Energy Reform program on Jan. 1, 2017, which allows private companies to invest and own infrastructure and fueling stations in Mexico for the first time since the inception of state owned and operated petroleum company, Pemex. By the end of that first year, fuel prices were fully subject to free market dynamics versus being controlled by the government. The deregulation and liberalization of Mexico’s fuel market ushered in a new regulatory framework designed to ensure free market conditions and foster private investments by outside companies.

Despite the hope for private investment, growth has been slow, and states remain heavily dependent on Pemex. The report identified several barriers to market diversification, including high entry costs, a complex and lengthy permitting process, limited transparency in price information, lack of security and difficulty competing with subsidized Pemex.

“Investment in Mexico’s infrastructure is essential to stabilize supplies and promote competition throughout the country,” Eichberger said. “There is evidence that distribution and storage capabilities are improving, but competition at the retail level has not yet materialized as the government had expected.”

Today, Mexico can store enough fuel to meet about 3.6 days of demand, but new proposed projects are expected to increase this capacity by 50%, with plans to reach 10-13 days of capacity by 2025.

Unfortunately, existing inefficiencies have resulted in pipelines operating at only 43% of capacity, and significant investment in fuel distribution infrastructure is needed to reliably meet demand. While retailers face good margins in Mexico, existing barriers to new competitors are resulting in rebranding of existing stations versus the opening of new retail sites. This has not resulted in improved competition, nor has it led to lower prices for consumers.

Even with current efforts to raise the production and storage capacity, Mexico will remain dependent on imports for the next 10 to 15 years. And as Mexico has become highly dependent on the U.S. for supply, the U.S. Gulf Coast refiners are just as dependent on Mexico for demand. This symbiotic relationship is likely to remain strong within the next decade.

Composition of the country’s vehicle fleet also impacts the fuels market. In Mexico, the vehicle market is dominated by gasoline and diesel-powered vehicles, which account for more than 96% of total fuel demand there. The fleet is expanding at a rate of 6.2% annually, with compact and subcompacts dominating the market with a 60% share. In Mexico, the average vehicle is 17 years old, which has direct implications on efforts to reduce emissions.

“This new report takes a very close look at the structure of regulations and how they affect fuel quality and composition relative to Mexico’s primary trading partner, the United States,” Eichberger said.

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