Mexico limits private fuel imports; it would hurt supply and investment: experts

Mexico limits fuel imports

Government in Mexico has issued new regulations to limit fuel imports by private firms, extending concerns about the unduly benefit of national oil company Petróleos Mexicanos (PEMEX).

The new regulations, issued on the weekend and expected to enter into force this Monday, limit private fuel imports from 20 years permits, to 5 years permits in order to end fuel importations and position PEMEX as the number one supplier.

This is a considerable shift from the 2013’s energy reform, which allowed private firms to participate in Mexico’s energy market, especially on oilfields, exploration and production. Pushed by the new leftist president Andrés Manuel López Obrador, these new regulations would “kill” the reform.

Among the changes, as we said, there is the limitation of import permits; which, according to Mexico’s agency for economic competitiveness, COFECE, hurt the supply demand balance and darkens the process for asking for those permits.

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“Without justification, new rules give the Energy Ministry (SENER) ample discretion and lack of transparency for adjusting import volumes; also, establishes a “fictious negative” for the permits, as the authority could deny them without responding to the firms. As a result, if changes are approved, it would seriously hinder economic competitiveness, free trade and the commercialization of hydrocarbons,” the agency said in a statement.

The agency concludes that the resolution tries to “reaffirm the dominant role of PEMEX in the Mexican market,” and that consumers may suffer fewer supply as a result.

Killing the energy reform in Mexico

For the last two years, Mexican president Andrés Manuel López Obrador has restored the dominance of PEMEX; and has “killed” the energy reform of his predecessor, Enrique Peña Nieto; whether by limiting imports, or by cancelling contracts, or ending oil and gas leases.

So far, the new regulations has caused massive criticisms among Canadian, European and U.S. congressmen. The intent is to have PEMEX at a strong production output of 2,4 million barrels a day by 2024. Nevertheless, expectations by S&P Platts are that Mexico’s output will remain flat for the next five years, at around 1,6 million.

To this day, Mexican market is 60% dependent on private fuel imports, as Mexican refineries operate at bellow capacity levels. For experts like Gonzalo Monroy, and Luis Cardenas, these resolutions are intended to ultimately close the market and leave it PEMEX’s hands; as a monopoly once again.

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