Deregulation in Mexico: Transformation to a Market-Based Structure Takes Time

June 7, 2016 By

June 7, 2016

As we continue to look at the issues surrounding Mexico’s deregulation of their petroleum markets, we can see how much effort and time it is going to take to transform the government monopoly into a market-based structure. On May 24th, Dave Hackett spoke about the state of the Mexican petroleum products market at the latest OPIS Mexico – U.S. Petroleum Summit. Dave’s presentation, The Value Chain Part 1 – Oil Product Supply, discussed the current petroleum product flows in Mexico, the export flows from the U.S. into Mexico, and wholesale prices along the border.

Mexico is a net importer of gasoline and diesel, but Mexico’s state petroleum company, Pemex, controls the transportation fuels distribution system. As the deregulation process continues, imports will avoid the Pemex distribution system by trucking products from terminals along the U.S./Mexico border. Data suggests that because rack prices in Arizona and Texas have been lower than Pemex wholesale prices, lifting product at these terminals and importing by truck to Mexico could be profitable.

Lifting gasoline and diesel from U.S. terminals in Arizona and Texas and importing into Mexico provides an opportunity, but some details need to be considered:

  1. Most U.S. gasoline is blended with ethanol at the truck rack
  2. Mexican gasoline stations must be prepared for ethanol blended gasoline
  3. U.S. Federal and State taxes are collected at the truck rack – how are taxes rebated for exports?
  4. Driver and truck qualifications
  5. Monetary exchange rate volatility

Decontrol of the Mexican petroleum market will change nearly everything in the supply chain. This transformation will take some time. We will continue to watch this market closely for opportunities and roadblocks.