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Fees, delays on Pemex open season puzzle Mexico's gasoline market investors

Pemex has yet to announce the next phase of its refined products logistics open season, which could be impacting investment decisions on new midstream projects in Mexico, according to sources.

Mexico's petroleum liberalization does not call for the sale of Pemex logistics assets. But the use Pemex's existing pipeline and storage infrastructure is being auctioned off in phases under three-year use contracts.

In the Northwest region, US refiner Andeavor (formerly Tesoro) won the first phase in May, allowing the company to use PEMEX assets in Baja California and Sonora for a three-year period.

Originally, the results of the second phase for infrastructure in the Northern region had a tentative date of May 25. However, delays in the open season's first phase have made this date not viable. Results for the third phase for assets in Central Mexico is scheduled for October 16.

Companies looking to build and acquire midstream projects in Mexico are looking to the auctions as a guide to determine how much they will be able to charge customers for the use of pipelines and storage tanks.

Eugenio Lohr, Boston Consulting Group project leader in Mexico City, told S&P Global Platts that some of its client companies have considered delaying midstream investment decisions because they lack a comparison point.

This concern was echoed at the Oil and Gas Innovation Forum in July in Mexico City by Rolando Vazques, director of Oxxo Gas, which is owned by Mexico's Coca-Cola FEMSA. Oxxo is the most popular convenience store chain in Mexico with over 14,000 locations.

"At the decision-taking time, how will I invest millions of dollars in a new midstream project without knowing how much Pemex's fee will be at a terminal in the same region?" Vazquez said.

"Pemex has to be transparent about [its fees] with the market so we can make investment decisions," he added.

Pemex, Mexico’s Energy Regulatory Commission, and its national Energy Secretariat declined to comment on the delays on the open season.

Some are downplaying the concerns. Mexico has reference prices for midstream developers to propose projects, Roberto Diaz de Leon, president of Onexpo, Mexico's largest retail group, told Platts.

These reference prices are the ones Pemex's Logistic division charges to the state-run company's marketing division, he said.

Pemex's Logistic prices has become more reflective of market conditions since the beginning of the year after the government ended national pricing and accounted for regional transportation costs in fuel prices, Diaz de Leon said.

Regional bottlenecks

Still, the results of Pemex's open season could set the bar for regions with infrastructure bottlenecks and high demand like Mexico City and Monterrey, he added.

Emerging logistic costs from changes to fuel prices early this year and the results of the Pemex open season aren't "perfect" but are the starting point for more "homogeneous" market prices, he said.

"However, I don't see project investment has been delayed by lack of price references," he added.

How influential Pemex's open season will be on project development will depend on the risk aversion of the investing company, said Sandy Fielden, Morningstar's energy research director.

"It is a reasonable view from an investment decision, but all comes down to if the cost of buying or acquiring infrastructure is competitive at a retail level in the international market," Fielden said.

Many projects will be built regardless of what happens with the open season.

"Some companies are willing to take on riskier investments with the hope to get a better market share or a first-mover advantage while others decide to wait and see," he added.

As an example of this strategic approach, Fielden pointed out to Valero’s recent agreement IEnova, Sempra Energy’s Mexican unit, for 1.3 million barrels of storage and distribution capacity in Mexico’s Central Region and 1.4 million barrels of storage capacity and distribution capacity at the port of Veracruz.

Open seasons a litmus test

Pemex's open seasons will be a litmus test for market conditions in Mexico. If the resulting tariffs are high and retail prices don't change, this could spell trouble to companies entering the market.

"If this is the case, there is a subsidy somewhere in the value chain," Lohr said. This would mean new players might not be competitive, he added.

"That is a point of view that exist in the market, and that is the biggest concern," Lohr said.

Fielden shares the concerns that if prices don't compare with international prices, then there is an inefficiency or a subsidy.

"If they don't get that right, then the rest of things are wrong," he said.

The next auction is for the use of assets in the Northeast, which includes Chihuahua, Coahuila, Nuevo Leon, Tamaulipas, and Gomez Palacio, Durango.

The region includes several pipelines with a combined operational capacity of 638,700 b/d, and storage terminals with a combined operational capacity of 2.6 million barrels, according to Mexico's Energy Secretariat (SENER).