Guillermo Garcia
President Commissioner of CRE
View from the Top

Bringing Market Opportunities to New Heights

Thu, 05/10/2018 - 11:24

Q: What were CRE’s milestones in 2017 regarding the competitive midstream and downstream sectors?

A: We had a landmark year in 2017 thanks to the implementation of further changes in the industry. The government liberalized fuel prices in general and regions were given the opportunity to set their own prices gradually, and within a year, price liberalization became a reality nationwide. Unified prices used to be the norm in the country and now they are differentiated by region and set by the players involved, injecting competitiveness into the market. We have 42 new fuel retail brands that started operations in Mexico from April 2017 onward. Another milestone was the abolishment of firsthand sales prices for natural gas in conjunction with the open season for transport system capacity. A free price opened the door for marketers to take a larger share of the volume sold in Mexico, which has climbed above 30 percent. We are trying to implement the same liberalization of prices in LPG, although this poses a bigger challenge as more infrastructure is required and further regulatory adjustments are needed beforehand.

A final milestone is the acknowledgement that we need to transport LPG to remote areas that require fuel. Around 15 percent of underprivileged families still use wood as a source for heating. We partnered with commercial and government-aid grocery stores, such as Diconsa, in these areas to deliver LPG and we will encourage more projects in this vein, especially through partnerships with the private sector.

Q: What are the critical success factors in the liberalization of the wholesale and retail fuel markets?

A: People are getting used to prices changing on a daily basis. There is more knowledge about how prices are defined, how international oil prices evolve, logistics, taxes and so on, creating a more robust discussion. This also highlights the shortcomings we face in terms of infrastructure and more active competition. For instance, LPG from Sinaloa must be shipped through the Panama Canal and come back to storage terminals in the Gulf of Mexico due to the lack of a pipeline, costing US$1 million to pass it from one side of the country to the other. Market liberalization has changed the mindsets of society in general, with people now understanding that these types of procedures make no economic sense. Companies also know that if they can do things at lower prices, obtain the necessary permits and operate efficiently, they will obtain a market advantage. The entire process has been quite transparent with this new breed of regulation emerging from the reform.

Q: What role do fuel price indexes, natural gas and LPG play in the consolidation of competitive markets?

A: They play a crucial role. We started publishing the daily natural gas price last year through an index we created. We perceive regional differences in prices in natural gas and that is pushing people to try and find connections with different regions, even in the US. That pricing is present in every fuel market and the idea is to have savvy investors developing these information processes and establishing investment plans for the future. We have worked on Gasoapp, our own app that provides daily and real-time fuel market prices for customers. Most people in Mexico have a cellphone, so this app opens the door for them to find better prices. Eighty percent of Mexican families use LPG, which is why we launched a second app called AmiGasLP, which displays the different prices from providers. This is designed to empower the consumer to analyze LPG prices nationwide.

Q: How will regulations enable the country to achieve competitive midstream and downstream markets?

A: We should do everything we can to deploy investment at the fastest pace possible. The speed so far has been good, if we take into consideration that prices were only liberalized last February. If we identify the barriers that exist as a result of the previous model and we work to bring those barriers down, regulations should move quickly and investments will flow in greater numbers to the benefit of the industry.