Mexico defending Pemex's share in shrinking fuels market: panelists

Mexico is aiding the state-owned enterprise Pemex keep its market share in the sale and distribution of fuels, but that market is destined to slowly disappear as global energy transition takes hold, said panelists during a webinar organized by law-firm Mijares-Angoitia.

The federal administration is currently strengthening Pemex by sometimes using anticompetitive practices, said Alejandra Palacios, head of Cofece, the Mexican antitrust watchdog during the Nov. 6 webinar on competition. The strategy has been particularly evident in the fuels market, Palacios said, but in a few years when electric vehicles or other technologies that address climate change are here, that market will no longer be relevant, she said.

"There are trends that we cannot stop," Palacios said, referring to the electrification of vehicles.

Palacios highlighted the ways in which the Mexican government has recently aided Pemex regain its market power through what she called "regulatory discrimination." This discrimination is one of the ways monopolies keep their influence and in Mexico, it include practices like delaying import permits, she said.

These practices have been mentioned by the regulator in formal complaints and highlighted recently by US senators in a letter to the president, S&P Global Platts previously reported.

There are more than 600 permits related to the gasoline, diesel or jet-fuel markets awaiting approval by the country's Energy Regulatory Commission, according to Onexpo, the largest association of gasoline owners in Mexico. The permits are mostly to import fuels, Onexpo data showed.

Mexico imported 1.2 million b/d on average of refined products from the US during 2019, according to a recent report by the US Energy Information Administration. S&P Global Platts Analytics data showed that demand for gasoline in Mexico will be roughly 120,000 barrels below 2019 levels in 2020 as a result of the pandemic. Diesel demand will be about 80,000 barrels lower, the data showed.

Market disruption

Using specific regulation to try to modify any relevant market becomes really tricky when technology is involved, as the market will naturally find what is best, said Pedro Haas, head of consulting practice at merchant commodities firm Hartree Partners.

"Disrupting the market not considering the costs of carbon reduction can have unintended consequences," he said.

Rosanety Barrios, an independent energy consultant, agreed during the panel that the transition is needed and unavoidable, but argued that Latin American countries rich in hydrocarbons need to make the transition to green energy using proceeds from these abundant resources.

"We cannot afford to give up these resources from one day to another; the resources have to finance the transition," she said.

Mexico produces most of the roughly 60 GW/d of power it consumes on average with natural gas, data from the Energy Secretariat showed. Natural gas demand in the country during September was roughly 7.5 Bcf/d, from which Mexico imported 5.2 Bcf/d, mostly from the US, according to Platts Analytics.