As a result of the Energy Reform, private companies are allowed to participate in the petroleum products supply chain. Fuel imports and retail sales were open to private participation in 2016, resulting in greater competition and rebranding of gas stations across the country. Private companies developed storage terminals and pipelines to offer a supply alternative to Pemex.
Figure 1: Demand and Supply for Gasoline in Mexico
In recent years, the gasoline demand has remained stable. In contrast, fuel imports have increased slightly as a consequence of Pemex refinery production decrease. Pemex’s fuel production only supplies approximately 20% of the national demand due to the low performance of its refineries while the other 80% of the gasoline demand is imported by Pemex and private companies.
Mexican fuel demand in April was 41% lower than last year as a result of SARS-CoV-2 pandemic lockdown. We have observed a slight rebound in May and June, but still lower than pre pandemic consumption levels.
Exxon Mobil, Shell, Total, BP, Arco and G500 are already importing fuel by land (via rail) and by sea to supply its points of sale, while others such as Repsol and Hidrosina have expressed their intention to start importing fuel in the short term.
The current administration has expressed its ambition to reduce import levels in the short term and to accomplish energy self-sufficiency in the midterm. However, Pemex is still unable to regain the market share that has been losing over the last six years (in 2014 its refineries supplied approximately 60% of the national demand).
Figure 2: Gasoline Imports by Pemex and Private Companies
Gasoline imports by private companies were 22% of total demand in December 2019. In June 2020, private imports reached 47%, because of the large reduction of Pemex import to accommodate the decrease in demand, while the private companies maintained its import levels.
Currently, there are 12,701 retail stations in Mexico, of which 37% correspond to brands different from Pemex; this percentage represents 4,747 gas stations of which, according to Pemex data, 2,698 gas stations are supplied both by Pemex and by other suppliers.
Figure 3: Retail Station Market Share
As of June 2020, only 7,954 gas stations operated under the Pemex brand, representing a 13.2% drop compared to the second quarter of 2019, while they had a 15% fall between 2018 and 2019. The rebranding process continues at a steady pace.
Figure 4: Gas Station Evolution
The loss of market has taken its toll on Pemex, a company that was already hit by problems of mismanagement and corruption in previous years. During the third quarter of last year its internal sales fell 19.6% to 202.52 billion pesos, representing 57% of its total billing during the third quarter of the year.
The poor performance of Pemex refineries is explained by years of underinvestment and lack of proper maintenance. Recently, some of the refineries are facing new logistical challenges as private imports have substantially grown in different parts of the country. For example, the Cadereyta refinery in the Northeast region went from producing 51 TBD of gasoline in 2017 to produce 40 TBD in 2020 in part because of the difficulty to place all of its production in its traditional markets. Despite the government’s efforts to restore the refineries to its historical production capacity, in June 2020, the National Refining System processed only 36% of this goal.
The current Mexican government is focused on strengthening Pemex position in the market. In December took off Pemex regulatory restrictions by annulling the agreement A/057/2018 that determined the price limit for the first-hand sale and storage of Pemex fuels. The function of the agreement was to implement asymmetric regulation model to allow for proper competition in the market.
The Government’s efforts have not explicitly involved halting private investment, but it has managed to undermine private investment by restricting, to some extent, the progression of new projects and slowing the regulatory permitting process.
The projections of national demand for gasoline in Mexico, prior to the pandemic, will be modified by the global recession, gasoline consumption in Mexico along with the expansion of retail stations is expected to return to growth terms by the third quarter of 2021. Pemex will be unable to take advantage of this situation as it has no means of investing because of its precarious financial situation. The Government has not many options and even forcing to go back to the state monopoly is extremely difficult because of the North America commercial treaties and diminishing public support. Next year´s elections will be crucial in defining the conditions going forward.
Even though the new government has been adamant in terms of trying to foster a stronger Pemex, we have seen that this hasn’t actually happened. Pemex is still not producing enough fuel internally. The amount of imported fuels by private companies and gas stations with other brand names apart from Pemex continues to grow in the country. In any sense, this is irreversible— this trend will continue.