Mexican demand for motor gasoline and diesel has plummeted this spring due to COVID-19 — so has demand for LPG. So far, Pemex — Mexico’s state-owned energy company and by far the country’s largest supplier of these commodities — has responded by slashing how much gasoline, diesel and LPG it is importing from the U.S. and holding its own production steady, despite the fact that Pemex’s refining margins are now deep in negative territory. What does Pemex’s focus on money-losing refining mean for U.S. exports to Mexico going forward? Today, we begin a short series on the ongoing competition between U.S. refiners and Pemex for market share south of the border.
The Shale Revolution, the opening up of Mexican energy markets and troubles at Petróleos Mexicános (Pemex) combined to spur a booming new business in Texas over the past five years or so: the export of large volumes of gasoline, diesel and LPG to Mexico by rail, ship and pipeline. As we said a couple of years ago in Into the Void, falling production of refined product and propane at Pemex’s aging refineries created a supply vacuum that U.S. refiners, marketers and shippers were all too eager to fill. At the same time, the liberalization of Mexican energy markets finally allowed players other than Pemex to become involved in motor-fuel distribution and retailing. In 2013, U.S. gasoline exports to Mexico averaged only 184 Mb/d, according to the U.S. Energy Information Administration; by 2019, they had risen by about 150%, to 472 Mb/d. The same holds true for diesel exports, which rose from 115 Mb/d to 287 Mb/d over the same period. As for LPG exports, they tripled, from 50 Mb/d in 2013 to 149 Mb/d last year.
Energy market liberalization in Mexico was a big factor in that growth. In Southbound, we said that the move toward an open market offered new opportunities for U.S. refiners, midstream companies and motor fuel retailers, among others. For instance, until 2016, Pemex was the only entity that could import gasoline and diesel to Mexico, and until early 2017, independent/third-party importers could not use Pemex’s refined-product pipeline distribution and storage network. Also, by late 2017, long-standing government caps on retail prices of motor fuels were phased out across Mexico.
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