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Observers see shift from Mexico over fuel storage, but skepticism remains

Highlights

Observers hopeful government might be responding to pressure from US

Skeptics demand real change coming from sector regulator

The reopening of private refined products storage terminals in Mexico is sparking hope the government may be softening its stance towards private investments in that sector, but observers remain skeptical about the potential for substantial change.

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In recent weeks, authorities have allowed some storage facilities, which had been shuttered, to resume operations.

Monterra Energy's 2.2 million-barrel terminal in the port of Tuxpan, at which operations have been halted since late 2021, is now operating, according to a person close to the company. Monterra announced in February it had filed a $677 million lawsuit against the Mexican government for the closure of the terminal.

US-based Monterra declined comment on its Tuxpan terminal.

The government of President Andres Manuel Lopez Obrador has also recently allowed operations to resume at a terminal in the state of Sonora owned by Bulkmatic de Mexico, observers said. The Mexico-based subsidiary of the US company did not respond to requests for comment.

Similarly, the government has also renewed the import permit that had been cancelled for trader Trafigura, according to data from the Energy Secretariat, and according to a Reuters report, state oil company Pemex has started negotiations to resume business with Vitol. The global trader's US subsidiary in December 2020 agreed to pay $135 million in fines to the US as the resolution to charges it had bribed officials in Mexico, Brazil and Ecuador, according to the US Department of Justice.

Neither Pemex nor Vitol respond to requests for comment.

New map of demand

"It may not be much, but it's a change in attitude," said Alejandro Helu Jimenez, an independent consultant in Mexico City, referring to the reactivation of operations at the terminals.

Helu Jimenez, CEO of PetroIntelligence, a provider of retail prices of fuels in Mexico, thinks Pemex is allowing the participation of private companies in fuel storage to help it cope with the additional demand caused by the government's subsidies to fuels.

The Lopez Obrador government in 2022 has doubled subsidies for gasoline and diesel to keep prices low as global values soar. The government has stopped collecting a special tax, called the "IEPS," and most recently began subsidizing distributors through tax rebates. The incentives have eliminated illegal imports, which were cheaper because they avoided taxation. Consumers who would typically purchase fuel from illegal importers switched back to Pemex to take advantage of the subsidies.

According to data from PetroIntelligence, the subsidies are roughly equal to 50% of their current prices.

The subsidies have revealed a new map of demand within Mexico, one that Pemex did not see before due to the illegal importers, Helu Jimenez said. As a result, Pemex is re-designing its logistics and needs all the terminals in the country, including those owned by the private operators to meet demand, he said. The disputes over the United States-Mexico-Canada Agreement, could also be adding pressure, he said.

In July, the US and Canada initiated dispute settlement talks with Mexico under the USMCA trade agreement.

Diego Compean, an independent consultant in Mexico City, agreed with Helu Jimenez that demand increases and pressure from the US regarding the trade agreement might explain the change in the government's attitude towards private investments. However, he said the international pressure could be the most important factor behind the change. Compean also pointed out that although the government might be reacting to the pressure from the US, it is only restoring the way the market operated when Lopez Obrador arrived.

"It is not a full change of attitude; they are not giving any new permits," he said.

Skepticism

Other observers told S&P Global Commodity Insights they were skeptical about the possibilities of a change in the government's fuel terminals position and said the cases where the government has benefited private investments are few and isolated. Most investors feel unsure about new spending and are tired of having to fight the government, observers said.

The handful of companies that have received a special treatment are mostly international firms protected by international treaties, said Carlos Vallejo Galvan, a consultant in Mexico City. However, most local investors continue to suffer from paralysis in the sector, Vallejo Galvan said, referring to the Energy Regulatory Commission.

For the past two years,the commission has rejected permits consistently either for storage or for distribution of fuels, and in 2021 aggressively increased its supervision and verification efforts, which led to the closure of multiple storage terminals as well as transloading facilities. The recent actions of the government could only be a sign of their reconfiguration of the market.

"A real change in attitude needs to come from the regulator," Vallejo Galvan said.