trending Market Intelligence /marketintelligence/en/news-insights/trending/xsfhspxuttvrubvvv3wlra2 content esgSubNav
Log in to other products

 /


Looking for more?

Contact Us
In This List

Proposed Mexico energy market reforms seen impacting US refiners

Blog

US utility commissioners: Who they are and how they impact regulation

Video

Climate Credit Analytics: Linking climate scenarios to financial impacts

Blog

Essential Energy Insights, April 2021

Blog

The Heightened Regulatory Environment: Is the Banking Sector Facing More Fines?


Proposed Mexico energy market reforms seen impacting US refiners

The energy market changes Mexico's incoming president, Andrés Manuel López Obrador, proposed could have negative implications for U.S. refiners, according to a recent research note from Morningstar.

The left-wing López Obrador, who is known as AMLO, won Mexico's July 1 national election, campaigning in favor of holding a referendum on the 2013 energy reforms that ended state-owned monopolies on oil and gas exploration and production and on electric power systems that have enabled private foreign investment.

While he has said he will respect existing contracts, and he is not expected to overturn the constitutional changes backed by President Enrique Peña Nieto, AMLO's administration could stall private industry growth by halting new oil and gas block auctions. Additionally, AMLO is expected to push state-run oil and gas company Petróleos Mexicanos SA de CV, or Pemex, to upgrade its existing refineries and invest in new ones across the country.

"If the new government slams the brakes on outside investment and instead pumps more money into Pemex refineries to boost domestic production, we see two consequences for U.S. refiners and midstream companies. The first is a slowdown in U.S. investments in port infrastructure, pipelines, terminals, and storage facilities associated with opening the distribution system. The second is a longer-term slowdown in refined product exports to Mexico as the domestic refineries increase the country's self-sufficiency," Morningstar director of oil and products research Sandy Fielden said in an Aug. 6 research note.

According to Morningstar, Mexico has six refineries with a total capacity of 1.6 million barrels per day, which have been operating below 70% capacity since 2012 due to needed investment and upgrades. Between 2010 and 2017, total refinery output of gasoline, diesel, jet kero and fuel oil fell 38%. During the same period, Mexico's demand for refined products was little changed at about 1.4 MMbbl/d.

"The widening gap between demand and declining domestic output required Pemex to import increasing volumes of gasoline, diesel, and jet kero after 2013, most of which comes from the U.S.," Fielden said.

Data from the U.S. Energy Information Administration shows annual growth of refined product exports from the U.S. to Mexico since 2010. In 2017, Mexico accounted for 11% of total U.S. liquefied petroleum gas exports, 25% of distillate exports, 26% of jet kero exports and 54% of gasoline exports.

"Although the nature, timing, and financing of AMLO's proposed changes are not yet clear, there is no denying that consequences for U.S. refiners could be considerable. The expansion of Gulf Coast refining during the shale era is closely bound to growing export demand, with Mexico being the largest customer. Any contraction in that export demand will require a major strategic rethink by U.S. suppliers," Fielden said.