Pipeline siphoning incidents in Mexico to continue to rise as fuel price liberalisation increases criminal incentives

On 21 July, three marines and two criminals died during an exchange of fire in Telpatlán, Puebla, as the authorities attempted to prevent a pipeline siphoning. Data released by national oil company Pemex report the company detected 4,259 illegal oil taps between January and May 2017, compared to 2,340 reported during the same period in 2016, representing an 82% increase. The states with the highest amount of illegal taps in the first five months of 2017 were Guanajuato (827), Puebla (574), Tamaulipas (511), Veracruz (475), Estado de Mexico (364), Hidalgo (346), Jalisco (229), and Sinaloa (189). Other hotspots are also emerging. These include Nuevo León, which registered 129 illegal taps in the first six months of 2017, compared to 121 in the whole of 2016. In Sonora, 55 were found in 2017, compared to 19 in 2016. In Morelos, 57 in 2016 compared to 159 in the first half of 2017. In Mexico City, an entity where pipeline siphoning has largely been absent, 17 cases were recorded during the same period. At the current trend, pipeline siphoning incidents will comfortably overtake record levels seen in 2016 when 6,537 siphoning incidents were registered.

A variety of criminal actors are involved in the illicit hydrocarbon market. At the lower end of the spectrum, individuals and criminal gangs dedicated to fuel theft known as "Huachicoleros"' siphon fuel and resell it within the local community or use for personal consumption. At the more organised end of the spectrum, transnational organised crime groups including Los Zetas and the Cártel de Jalisco Nueva Generación are involved, working on some occasions with Huachicoleros, and retailing the fuel to petrol stations within Mexico and in more extreme cases exporting the fuel to the United States. Some Pemex employees are also involved in the activity; 628 unionised and subcontracted workers were charged with fuel theft in 2016.

Robbery of fuel trucks

Although the majority of losses suffered by Pemex are a result of theft from pipelines, oil tankers are also targeted. Pemex reported the theft of 1,732 fuel tankers in the decade to 2016, more than the total of its current fleet of 1,485 tankers. Another 27 were stolen between January and April 2014. Tanker robbery incidents have been on a downwards trend since 2014 when 296 tankers were stolen. Incidents declined to 179 in 2015 and 131 in 2016. If the current rate of tanker robberies continues, around 110 incidents are likely to be reported by the end of the year. The greatest incidents of robberies have occurred in Estado de Mexico, Guanajuato, Oaxaca, Puebla, Tamaulipas, and Veracruz.

Spotlight Puebla

The state of Puebla was registered the highest amount of pipeline siphoning incidents in 2016 with 1,589 incidents, representing some 20% of incidents nationwide. The epicentre of this activity is situated within the so-called "Red Triangle" an area comprising of the municipalities of Acajete, Acatzingo, Palmar de Bravo, Tecamachalco, and Tepeaca, and affecting Pemex's Minatitlán to Mexico City pipeline. The pipeline carries approximately 40% of hydrocarbons that reach Mexico City. Huachicoleros are well established in the area, often supported by local communities. On 5 July, the mayor of Palmar de Bravo was arrested for alleged involvement in fuel theft.

Losses

Pemex lost almost USD1.7 billion in 2016 as a result of an average theft of 26,000 barrels per day. The amount is equivalent to 2% of the company's total sales in 2016. In addition to lost fuel, the company spends on average more than USD34,000 decommissioning and repairing damage caused by illegal oil taps. Pemex reported cleaning up 213 oil spills in 2016, the majority as a result of oil siphoning incidents. Pemex has previously been responsible for the clean-up of damage caused by spills and explosions triggered by tampering with pipelines. However, in June 2017, the Supreme Court ruled that the clean-up of damage caused as a result of fuel theft was the responsibility of the state, due to its responsibility to prevent and investigate crime.

Pemex and state responses

Pemex and the state have taken a number of measures to reduce fuel theft incidents, with little success. According to data released to the US Securities and Exchange Commission, during 2016 Pemex inspected more than 10 million kilometres of pipeline, supported state authorities in identifying more than 2,500 vehicles involved in fuel theft, created territorial divisions to prioritise monitoring activities, and trained law enforcement and other state officials in the prevention, detection, and prosecution of fuel theft. The company spends over USD2.3 million per year on supervisory control and data acquisition (SCADA) software to detect drops in pressure within its pipelines.

The state has also taken a number of measures to reduce fuel theft. In January 2016, the Federal Law to Prevent and Sanction Crimes related to Hydrocarbon Matters was passed, increasing criminal sanctions for hydrocarbon theft. The government is considering including fuel theft within the category of crimes subject to proceeds of crime confiscations. Security forces deployments have also been increased in hotspots. For example, in May 2017, the government deployed 3,000 soldiers and police officers to tackle illegal siphoning in Puebla.

Outlook and implications

The increase in pipeline siphoning is likely to continue, as fuel price liberalisation introduced in January 2017 is increasing consumer prices of legitimate fuel, thereby increasing demand for illicit, cheaper, alternatives. This trend will strengthen further if international oil prices begin to rise. Although the majority of the losses incurred by this activity fall on Pemex and the state, Mexico's energy reform has opened up the hydrocarbon market to private actors. In May, US-based Tesoro secured the first major contract to transport fuel using Pemex's pipeline and storage infrastructure. Others, such as TransCanada, are looking to build their own pipeline infrastructure. Consequently, the losses incurred as a result of fuel theft will increasingly affect private investors as the market continues to open. The government's efforts to impede the activity have had little effect on its occurrence. Institutional weaknesses within Mexico, high levels of corruption, as well as the sheer size of the pipeline network will make it particularly difficult to stem the activity.