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Watch: Opening Mexico's markets for refined oil products has been a bumpy ride

Mexico is opening its refined oil products sector to outside companies to meet higher demand for gasoline and diesel, among other products, but midstream capabilities have become a sticking point during the country's liberalization. As Jeff Mower explains, state oil company Pemex has been slow to share access to pipelines and storage tanks, which means imports from other countries — including the US — could be hitting roadblocks. Will this stop competitors from entering the market?

Learn more about Mexico's changing crude and refined oil landscape, as well as the natural gas and power sector, in our special report: Mexico's energy transformation takes hold.

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Video Transcript

Opening Mexico's markets for refined oil products has been a bumpy ride

By Jeff Mower, editorial director, Americas oil news and analysis

Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.

Mexico is in the process of liberalizing its oil industry, opening exploration and production to international oil companies in an attempt to turn around its declining output.

After a rocky beginning, the process has gone smoothly so far, with offshore and onshore oil and gas blocks being awarded through regular, transparent auctions.

Mexico is also in the early stages of opening up its markets for refined products, such as gasoline and diesel. However, that process has run into some bumps.

Mexico needs to open its refined products sector to outside oil companies in order to meet higher demand for gasoline and diesel resulting from Mexico’s economic growth. Mexico’s Energy Secretariat expects gasoline consumption to exceed 1 million barrels per day by 2026, from roughly eight hundred thousand barrels per day in 2016.

Decades of monopolistic control from state oil company Pemex left the country with an underfunded and inefficient supply system.

Pemex owns six refineries with a total capacity of 1.64 million b/d, running well below capacity

Pemex owns six refineries with a total capacity of 1.64 million barrels per day, but those plants are running well below capacity. As its refineries cannot meet consumption, Mexico currently imports a large percentage of its gasoline, diesel and jet fuel, primarily from the US. Pemex has been the main buyer of refined products imports, but now Mexico is allowing international companies to import and market gasoline and diesel, bypassing Pemex.

The problem is that in order to bring fuel into Mexico, those companies need access to the pipelines and storage tanks owned and operated by Pemex. And Pemex has been slow to share those assets.

Outside companies are allowed to build their own pipelines and storage tanks, and there are projects in the works. But those projects take time, and time is of the essence to companies eager to capture market share early.

Pemex delayed second round of regional auctions for use of its midstream assets

Pemex was supposed to hold five regional auctions for the use of its midstream assets. But the auction process has stalled, with Pemex delaying the second round, originally to be held in June.

CRE proposed granting new companies access to Pemex pipeline and storage infrastructure.

Mexico’s energy regulator, CRE, recently proposed granting new companies access to Pemex pipeline and storage infrastructure. Companies would be able to bypass Pemex altogether, issuing their request to the CRE.

Pemex, of course, is not backing down without a fight, charging that the CRE is acting outside of its powers.

It will take some time to see how this plays out. But even if Pemex wins the fight, it will only delay, not stop, competitors from entering Mexico’s growing gasoline and diesel markets. And if you’d like to learn more about Mexico’s refined product, crude, gas and power industries, take a look at our special report, ‘Mexico’s energy transformation takes hold.’

Until next time on the Snapshot — we’ll be keeping an eye on the markets.