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Into the Void - Mexican Market Liberalization, Refinery Setbacks Open Door to U.S. Companies

Falling production of motor gasoline, diesel and other refined products at Mexico’s aging refineries has created a south-of-the-border supply void that U.S. refiners and refined-products marketers and shippers are all too eager to fill. At the same time, the ongoing liberalization of Mexican energy markets is finally allowing players other than state-owned Petróleos Mexicános (Pemex) to become involved in motor-fuel distribution and retailing. The results of all this? U.S. exports of gasoline and diesel to Mexico are up 60% from two years ago, and U.S. companies are scrambling to develop or acquire the infrastructure needed to deliver refined products to Mexican consumers. Today, we begin a new series on the increasing role of U.S. companies in supplying, distributing and retailing motor fuels in Mexico, and on the new transportation and terminalling infrastructure being built to support that growth.

U.S.-Mexico hydrocarbon trading and Mexican energy deregulation have been frequent topics in the RBN blogosphere. In With a Little Help From My Friends, we discussed declining Mexican crude oil production and the collapse of Mexican crude exports to the U.S., which fell to only 372 Mb/d in September 2017 — one-fifth the 2006 peak of nearly 1.8 MMb/d, and the lowest level in more than 35 years. Natural gas exports from the U.S. to Mexico have been covered extensively too (It Takes Two, Coming Around Again and I Just Can’t Make No Connection), and in the Enciende Mi Fuego/Light My Fire blog series, we looked at rising exports of U.S. liquefied petroleum gas (LPG). And then there’s gasoline and diesel. In Borderline, we detailed how Mexico has become reliant on motor fuels refined in the U.S. to supplement its aging refining system; in Livin’ La Vida Local, we highlighted how important U.S. exports of distillate — including diesel to Mexico — have become; and in Southbound we discussed how the opening up of Mexico’s energy markets to players other than Pemex is providing a range of opportunities to U.S. refiners.

Mexico’s deregulation effort began in earnest four years ago this month, when (in December 2013) the government approved constitutional reforms that enabled the gradual dismantling of Pemex’s monopoly, which had been in place since 1938. More detailed follow-up legislation was enacted in August 2014, and since then (in fits and starts) Mexican and non-Mexican companies alike have been permitted to play an increasing role in hydrocarbon exploration and production, pipeline development and ownership, and — most recently — refined-products distribution, storage and retailing. Until April 2016, Pemex was the only entity that could import gasoline and diesel to Mexico, and until earlier this year (2017), independent/third-party importers could not use Pemex’s refined-product pipeline distribution and storage network. Also, between March 30 and November 30, long-standing government caps on retail prices of motor fuels were phased out across Mexico.

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