Houston — The Mexican ethanol market could have more room to grow as the states of Nuevo Leon and Jalisco have asked for a repeal of a ban on ethanol blending in their principal cities of Monterrey and Guadalajara, respectively.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
"If our gasoline composition is right then ethanol can work," said Alfonso Martinez, undersecretary of protection of the environment and natural resources in Nuevo Leon, in a Tuesday phone interview with S&P Global Platts. "We have nothing against ethanol, we just want to get pollution down," he added."
Mexico currently blends MTBE as its primary oxygenate.
The Mexican Energy Regulatory Commission updated transportation fuel specifications in 2016, in part to ease refined product flows from the US.
Part of that update allowed ethanol blending in Mexico for the first time up to 10%. Monterrey, Guadalajara and Mexico City were excluded from blending, because of environmentalists' concerns that blending would increase pollution in areas with already poor air quality. That led to a recent injunction that rolled back the 10% national blending cap to 5.8%.
Increasing the amount of ethanol in gasoline can raise the RVP of the final blend as vapor pressure does not follow linear blending. A higher RVP means the gasoline can evaporate more easily, releasing pollutants. The traditional specifications of Mexico's gasoline have made that easier evaporation a serious danger, but the new specifications would mean higher ethanol blending could reduce the emissions from gasoline.
"We need to change the gasoline we're using," Martinez said. "We have done modeling and if we blend ethanol with US gasoline, emissions are lower. But blending our current gasoline with ethanol there is more pollution. We will need to reformulate our gasoline or import it."
The Nuevo Leon and Jalisco asked for the ban to be lifted after modeling showed over 50% of pollutants in Monterrey and Guadalajara came from gasoline.
Mexico City is still doing modeling to determine the effects of higher ethanol blends and the bans in Monterrey and Guadalajara could remain in place until the capital makes its decision, according to Martinez.
Related: Find more content about Mexico's commodity landscape in our news and analysis feature. Additionally, read our special report, Mexico's energy transformation takes hold.
BIG BIOFUELS POTENTIAL
The Mexican ethanol market could be 1.2 billion gal/year if ethanol was blended at 10% across the country, the US Grains Council has said.
Domestic production is also increasing to help meet demand. The states of Veracruz and San Luis Potosi have seen multiple ethanol plants being constructed. Those in Veracruz use sugarcane as a feedstock and those in San Luis Potosi are using sorghum. Many US ethanol producers have commented over the past year that the developing market in Mexico could be a key demand center for American ethanol. If Mexico's market indeed grows to over 1 billion gal/year the country will likely need imports.
The bans in Monterrey and Guadalajara have been major hurdles for expanding exports to Mexico from the US, but if those bans disappear a new, consistent trade flow could emerge. And with gasoline flowing directly from the US Gulf Coast the ethanol might come as a prepackaged deal.
Martinez said the changing specification of the gasoline being used in cars drove the request for the ethanol blending ban to be lifted from Monterrey and Guadalajara.
"The gasoline we're using would cause more pollution if it had ethanol, but if the gasoline has the same specifications as the US the ethanol would be OK," he said.
US COMPANIES EYE OPPORTUNITY
Mexico's energy markets are currently undergoing a liberalization as the government allows private companies to participate.
Many US-based companies are looking at ways to increase exports to the country, including refined products such as gasoline.
Aligning the Mexican gasoline specification with the US' could allow allow sellers to send gasoline already blended with ethanol straight into the country.
Ethanol typically cannot remain blended with gasoline in storage as it can separate and cause issues. But because storage space is so thin in Mexico gasoline imports can make their way into gas stations before that separation happens.
Many US companies would consider sending gasoline with pre-blended ethanol a cheaper offering than current specifications blended with MTBE.
"By permitting the use of E10 in its fuel market, Mexico will also have blend levels consistent with fuel sold and used throughout the US and Canada, which will help drive trade and investment in its ethanol fuel sector. It's a win win for consumers," said Ed Hubbard, general counsel for the Renewable Fuels Association, the largest US ethanol trade group.
--Josh Pedrick, firstname.lastname@example.org
--Edited by Richard Rubin, email@example.com