September saw Mexico’s six refineries eke out their lowest levels of gasoline production in 27 years. Combined with a steady growth in demand for refined fuels, the obvious question is this: What are you doing about Mexico? In this issue of Market Update we’ll discuss the country’s continued production woes, the opportunities presented by the opening of Zone 3, and Pemex’s evolving strategy to protect market share.
The Need is Now
Driven by ongoing outages at Salina Cruz and Madero, and stunted further by low operating levels at the country’s other units, Pemex refineries generated just 198,000 bpd of gasoline in September. To give you some reference: That’s 21 percent lower than the previous month, and 28 percent lower than September 2016. Gasoline wasn’t the only short product, however. Diesel production is down 36 percent from last year.
This spells good news for American refiners, particularly those in the USGC. U.S. exports of gasoline to Mexico have reached nearly 600,000 bpd, with diesel exports averaging an impressive 236,000 bpd. Further, non-Pemex imports are slowly claiming market share, with diesel leading the charge at an average of 30,000 bpd. Meanwhile, gasoline volumes are approaching 1,000 bpd and growing daily.
One Step Closer
On October 31, Mexico introduced market pricing on transportation fuels in Zone 3, representing the Mexican states of Sinaloa, Durango and Baja California Sur. The least populous region opened thus far, Zone 3 lacks the level of U.S. connectivity enjoyed by Zones 1 and 2. Despite this infrastructure handicap, pricing is not expected to see a major swing from previous postings.
With the three new states now subject to market pricing, approximately 35 percent of Mexico’s retail stations, and 20 percent of Mexico’s fuel demand, reside in a deregulated price environment. And with just two months remaining in 2017, the rest of the country will soon enjoy fuel pricing based on true economics.
Pemex’s Retail Retool
As mentioned in previous updates, the rush to establish a retail presence in Mexico has been vigorous to say the least. Every week it seems that another major player announces an intention to pursue the Mexican retail market. As these announcements mature into actual brick-and-mortar stations, Pemex is feeling the heat.
In an effort to protect market share, Pemex’s Director of Downstream Activities, Carlos Murrieta Cummings, announced that the state-run outfit will present a new franchise model in November. It will be interesting to see what changes Pemex is willing to make, and even more interesting to see whether they can implement those changes while providing a competitive product offering.
Interested in breaking into Mexico’s retail fuels market? With established relationships on both sides of the border, our international markets team is here to answer your questions. Give us a call today.
Senior Vice President of Terminal Operations