Fuel Oil Demand Grows

Fuel oil demand in Mexico reached its highest level in two years, experiencing a remarkable 64% month-on-month and 30% year-on-year growth in June 2023, reports Bloomberg. This surge contradicts the government's objectives to enhance gasoline refining and reduce exports reliance, as it aims to achieve energy self-sufficiency and meet its environmental commitments.

Fuel oil exports also peaked between January and May 2023, at 218,748b/d, the highest result since the company started reporting fuel oil exports in 1990, highlighted Argus. International demand plays an important role in the increase in fuel oil demand in Mexico. Geopolitical conflict and tensions in Europe have limited access to fuel oil, recurring to Mexico’s supply to cover demand. The Netherlands and Singapore are among the countries that have increased their demand for this product.

While fuel oil production and demand have increased, gasoline and diesel refining has dropped, drifting Mexico further away from its refining targets.

Fuel oil has long been the No. 1 refining product from Mexican refineries. However, its commercialization strategy became more complicated as the International Maritime Organization (IMO) implemented new regulations in 2020 that prohibited ships to use fuel oil with more than 0.5 percent sulfur, criteria that PEMEX’s fuel oil does not meet. Nevertheless, demand from the US helped Mexico in avoiding an excessive stock of fuel oil. But, what salvages this product the most is internal demand.

Fuel oil enables CFE to produce more power at lower prices. However, experts have highlighted the disadvantages of utilizing this fuel to create electricity due to the pollution it generates. Meanwhile, the government has pledged to increase gasoline and diesel refining to achieve energy self-sufficiency. The country has yet to meet its targets, which means that fuel oil remains a key refining product.

As previously reported by MBN, fuel oil, also known as heavy oil, bunker fuel or combustoleo in Spanish, is a separation obtained when refining crude oil into other products. On its own, the fuel is not particularly valuable, exemplified by its denomination as “bottom of the barrel leftovers” by the International Council on Clean Transportation (ICCT). 

As the world focuses on the energy transition, natural gas has become a popular transition fuel to generate electricity. Nonetheless, CFE’s efforts to implement a more sustainable strategy are still lacking since it still has not renovated many of its generation plants to better suit sustainable goals. What is more, Mexico has embarked on a dispute with the US and Canada due to its energy policy, as it strengths state-owned companies PEMEX and CFE. Furthermore, experts have warned that empowering PEMEX, while following a fossil fuel approach to strengthen CFE, hampers Mexico’s ability to advance in its energy transition.