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Mexican court overturns ethanol blending injunction

Houston — A federal tribunal in Mexico Thursday overturned an injunction blockingethanol blending from climbing to 10% from 5.8%, two sources connected to thecase told S&P Global Platts.

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"Effectively, today the collegiate court decided to revoke thesuspension," said Juan Machado, a partner in the law firm SOLCARGO and theattorney who led the case in favor of the suspension.

The US Grains Council, an industry group focused on expandingagricultural exports to Mexico, was not available for comment as it digestedthe news. The Grains Council has spoken in favor of increasing ethanolblending in Mexico and criticized the injunction in the past.

The official filing from the court will likely follow in the coming daysor weeks, Machado said. He added that the reversal of this injunction did notsignal the end of his clients' opposition to increasing ethanol blending inthe country.

"First, this is a decision that, due to its incidental nature, sayslittle or nothing about whether or not the underlying issue will prosper."

Machado's case argued that increasing the amount of ethanol in gasolinewould cause harm that cannot be immediately seen.

"The history of this litigation is just beginning. It is still necessarythat the main matter is processed and that we have the opportunity to weighall the evidence on the harmful aspects of ethanol in gasoline." ETHANOL'S EFFECTS ON AIR QUALITY

Increasing the amount of ethanol in gasoline increases the Reid VaporPressure of the fuel, meaning it will evaporate more easily. In the US,gasoline with 10% ethanol received a waiver as it would have lower emissionsdespite the easier evaporation.

Mexico uses MTBE as its primary oxygenate in gasoline, which is whyethanol has not been a consideration.

Machado argued that a higher ethanol blend would increase particulateemissions, something Mexico has been trying to combat.

US groups have argued that research shows ethanol results in lower carbonand particulate emissions, helping improve air quality.

Oil industry groups, however, have cited conflicting studies that sayhigher ethanol volumes could result in increased particulate emissions.

Although the injunction has been overturned, the case around ethanol'sfuture in Mexico is ongoing. A TUMULTUOUS START FOR MEXICAN ETHANOL

The initial injunction followed a new fuel specification, released by theMexican Energy Regulatory Commission.

In 2016, the CRE said it would allow ethanol blending to increase to 5.8%from zero in all areas except Mexico City, Guadalajara and Monterrey, as partof NOM-016, a broader measure to update its fuel specifications.

Then, in June 2017, the CRE announced it would be allowed at 10%.

Shortly after the blend level was raised to 10%, a judge granted an injunctionthat rolled the level back to 5.8%.

The injunction applied only to Pemex as the attorneys seeking therestriction saw Pemex as the only company likely to blend ethanol andgasoline.

US ethanol producers who have long eyed Mexico as a potential source ofdemand viewed the legal battles around blending as a sign that the marketmight not be ready for the biofuel.

Based on data from the Mexican government, a nationwide E10 blend couldcreate a 1.16 billion gallon/year market for ethanol.

"The opportunity is huge," said Steve Bleyl, US ethanol producer GreenPlains' vice president of ethanol marketing, during a 2016 earnings call.

--Josh Pedrick, joshua.pedrick@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com