(Energy Analytics Institute, Aaron Simonsky and Jared Yamin, 25.Jun.2019) — As part of Energy Analytics Institute’s ongoing coverage of the Latin America and Caribbean energy sectors from conventionals and unconventionals to renewables, two oil and gas experts covering Mexico – GMEC’s Director Gonzalo Monroy and Baker Institute’s Fellow Adrian Duhalt – weigh in briefly on Mexico’s open season process.
Mexico Open Season
Procedures related to Mexico’s open season establish the foundation for open, non-discriminatory access to Pemex’s pipeline and storage infrastructures. The public auctions were designed to provide greater certainty to importers and sellers, as well as to other actors in the logistical chain in the petroleum market, according to reports on the matter published by Petróleos Mexicanos (Pemex) on its website.
Pemex Logística, the Pemex subsidiary that manages the network of terminals and pipelines of the state company, holds the open season auctions to reserve transportation and storage capacity in roughly 60 terminals and 27 stretches of pipeline throughout various regions of Mexico.
What follows are excerpts from our conversations with Monroy and then Duhalt for our series: LatAmNRG Q&A
Comments from Gonzalo Monroy, Director of Mexico City-based consultancy GMEC:
Energy Analytics Institute (EAI): Did the situation earlier this year with fuel thefts in any way alter the way companies view Pemex and the open season process?
Gonzalo Monroy: The problem earlier this year with the fuel thefts by the so-called fuel thieves, or huachicoleros in Spanish, and the resultant lack of fuel supply earlier this year showed gasoline station owners that Pemex was not a reliable supplier. Thus, many then started to look for new supply sources. The open season, designed to give access to Pemex’s idle pipeline transport infrastructure to third parties, has basically been a fiasco.
What has happened as a result of recent events is that even though Pemex is offering access to third parties, there is a lack of interest from them.
For example, we are seeing that Valero is interested in boosting its presence in Mexico as it relates to infrastructure and service stations, and that it is even considering Mexican partners. The company is basically saying it will not move forward with Pemex, but it is willing to compete in the Mexican market.
It is apparent expansion of Mexico’s market will not come from Pemex, but from the private sector. On the other side and interestingly we are also seeing Shell and BP continue with their strategies of growing in partnership with Pemex.
So, what we see developing are two competing models. One were companies will supply their own resources (either via train or pipeline) and another were companies will supply resources with use of Pemex’s infrastructure.
Comments from Adrian Duhalt, Ph.D., a postdoctoral fellow in energy studies at Rice University’s Baker Institute:
Energy Analytics Institute (EAI): Are you seeing that private sector companies have lost faith in Pemex and the open season process? If so, is this related to Pemex issues or others?
Adrian Duhalt: There is no doubt private companies question the role of Pemex as partner and the open season process. However, part of this can be attributed to President Lopez Obrador’s stance concerning the scope of participation of private firms in activities related to the energy sector. In that sense, uncertainty is yet to be dissipated.
Another factor is the rule of law. Fuel theft continues to be a challenge and that raises concerns among private players.
Energy Analytics Institute (EAI): Are you seeing the private sector taking on more projects alone to continue bringing product into Mexico: pipelines, trucking fleets, storage options? Is the private sector still willing to work with AMLO?
Adrian Duhalt: We are seeing more companies developing projects to transport fuel without Pemex in the equation. That’s a step that could be costly in the short run, but it may pay off in the long term as private companies will eventually build branding and marketing capabilities and that, unfortunately for Pemex, will lead to greater market share.
Despite all, private firms are willing to work with AMLO and Pemex. Let’s not forget that Pemex is, and will continue to be, the backbone of the energy sector in Mexico.
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© Energy Analytics Institute (EAI)