STORY INLINE POST
On Dec. 28, 2021, PEMEX set out 10 tasks to execute before the end of the current presidential term. These tasks are: maintain the level of proven reserves; allocate the growing production of liquid hydrocarbons to meet the demand of the National Refining System (SNR), eliminate the export of crude as of 2023; increase the processing of crude oil in the SNR to 2 million bpd, including Dos Bocas, Cangrejera and Deer Park; invest in the Cangrejera Petrochemical Complex to produce premium gasoline and diesel; rehabilitate fertilizer plants; recover the Lakach field natural gas exploitation project; perform maintenance and the rehabilitation of gas processing centers; recover its participation in the national fuel market; consolidate the operation of the subsidiary Gas Bienestar; address critical risks in industrial safety and environmental protection; and, finally, oversee the basification of 17,000 transitory workers, after the election of the company’s new union leadership.
The public debate that followed this presentation focused on the export of crude oil. The idea that seemed to be generalized is that Mexico would stop exporting oil. However, this will hardly be the case for two elementary reasons: 1) the obvious: the decalogue of tasks only applies to PEMEX, while the (expected) growing production from contractors is not subject to any legal or contractual restriction regarding commercialization (although it is subject to permits from corresponding export); and 2) the formal: technically speaking, shipments made to Deer Park will be counted as exports when calculating the country's trade balance, as occurs, for example, in the automotive sector where the vehicles are counted as exports even though, to a large extent, it is intra-company trade.
In any case, the marketable volume of crude oil extracted by PEMEX outside the National Refining System (already including Dos Bocas, Cangrejera and Deer Park) will depend on the balance between the amount of oil extracted and the volume actually processed through the SNR.
In this sense, a point that is closely linked to the balance raised in the previous paragraph, is that which refers to PEMEX's will to recover its participation in the national fuel market. It is worth remembering that the implicit objective of the first of the two reforms last year of the Hydrocarbons Law was precisely to manage crude oil import permits and the transportation, storage and distribution capacities of private agents, in such a way so that these only covered the portion of the fuel market that the national oil company could not satisfy. Likewise, the second reform sought to decree those effective conditions of competition already exist in the fuel market, for which it becomes unnecessary to maintain the asymmetric regulation of PEMEX. As a result of various amparos filed against both reforms, their application has been suspended while they are under review by the Judiciary.
One of the main objectives of the 2013-2014 Energy Reform was the creation of an internal fuel market. This meant displacing PEMEX from the most profitable portions of the same and, in that effort, in the second half of the previous six-year term, the Hydrocarbons Law was reformed and various administrative and regulatory provisions were enacted to accelerate the process of increasing the substitution of PEMEX in the import, transportation, storage and distribution of refined products. However, at the end of the last administration and despite the granting of hundreds of import permits, PEMEX continued to produce or import almost all of the fuels consumed in Mexico.
As a result of the facilities granted to private operators to mitigate the shortage caused by the measures implemented at the beginning of this administration, against the theft and illegal trade of fuels, the penetration of the private sector in the fuel market has been growing steadily. From representing a marginal portion (0.1 percent) of fuel sales in November 2018, today it represents 22 percent of gasoline sales and 27 percent of diesel, as a proportion of the volume sold in the country. This expansion is also explained by the operational difficulties faced by PEMEX Industrial Transformation.
Indeed, in 2020, PEMEX had the lowest percentage of crude oil processing in relation to its installed capacity (37 percent), since the National Refining System consists of six refineries, since the closure of the Azcapotzalco refinery in 1992. This indicator improved significantly in 2021 but it remains below 50 percent.
The possibility of consolidating this indicator continues to be limited by fuel oil production. Between August 2020 and November 2021, the production of fuel oil exceeded the production of gasoline in the SNR, a situation that was barely reversed in December last year. Thus, the average annual production of fuel oil in 2021 was 244,300 bpd, compared to the 232,900 bpd that were produced for gasoline on average. This fact affects the operation and efficiency of the national refining system, since the processes must decrease while the accumulated fuel oil is released.
On the marketing side of petroleum products, according to Onexpo, as of Dec. 31, 2021, 6,986 service stations (54.2 percent of the total) operated under the PEMEX franchise and 5,898 (45.8 percent) operated under other brands. Likewise, although 1,287 non-franchised stations continue to buy fuels produced or imported by PEMEX, the data is still significant in terms of its loss of the internal market, as we have already seen reflected in the growing volume of fuels marketed by different agents in the national market.
On the other hand, the government objective that gasoline prices do not increase in real terms, in a persistent scenario of high oil prices, could be detrimental to PEMEX, which could end up supplying the less profitable regions for the business at subsidized prices, Despite having eliminated the IEPS tax, the resulting price increase significantly exceeds the accumulated inflation since December 2018.
The strategic importance of fuels in the national economic dynamics and the daily life of citizens justifies the intervention of the state to guarantee the continuity, sufficiency and timeliness of supply at accessible prices. However, we should begin to ask ourselves, what is the optimal social, energy and environmental taxation of fossil fuels? And could the fiscal sacrifice of MX$104.1 billion (US$5.1 billion) that the state made in 2021 to control the prices of gasoline and diesel have been better allocated?