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Mexico energy reform like “shock therapy”

18 Oct 2017, 4.55 pm GMT

Mexico energy reform like "shock therapy"

Houston, 18 October (Argus) — Mexico's historic energy reform has moved at a swift pace in the past three years and has been a bit like "shock therapy," one of the country's top energy officials said.

"We have moved from the state monopoly to open markets in this short period of time," said Mexico deputy secretary of energy for hydrocarbons Aldo Flores Quiroga, at the Argus Mexican Refined Products Markets conference in Houston.

The ground-breaking energy reform, enacted in 2014, ended a decades-long monopoly held by state-run oil company Pemex.

Mexico has transitioned from a system run by one company to having 67 companies involved in exploration and production, 27 companies involved in retail fuel stations and 56 in transportation and storage infrastructure, Flores Quiroga said. Independent companies are now been able to apply for permits to open non-Pemex fuel stations since 1 January 2016 and to freely import fuel since April 2016.

Mexico has awarded 548 import permits and currently about 39 private companies are importing gasoline and diesel.

US refiner Andeavor earlier this month moved its first delivery of fuel into western Mexican pipelines and terminals leased from Pemex, the company said today. Fuel delivered to the Pemex Rosarito terminal in Baja California will be distributed this week by Andeavor's wholesale jobber, ProFuels, to Arco brand stations.

Six out of 32 Mexican states are selling fuel at market prices amid a staggered implementation of the energy reform. Those six states have a market equivalent to the combined markets of Colombia and Ecuador, Flores Quiroga said.

Liberalization began in the Mexican states along the US border and will continue throughout the end of the year. By law, fuel prices must be market-driven nationwide by 1 January 2018. The retail gasoline market has much room for growth as each station in Mexico provides service for 3,040 cars, about double the number for stations in the US, he said.

Meanwhile, transportation and storage in Mexico is becoming insufficient to meet the needs of the growing market. The country has 73 storage terminals, five marine terminals and 10 cabotage terminals. Most of the terminals are in central Mexico. "We need much more coverage around the country," Flores Quiroga said.

Nine new companies have been approved to add 5.3mn bl of storage capacity.

Mexico only has storage capacity for about three days. The goal is to have three to five days of supply by 2020 and 13 days of supply by 2025.

That means more than doubling capacity to 19.6mn bl by 2025.

The government hopes to attract fresh investment to the sector, which has stagnated because of minimal spending on infrastructure, declining refinery output and widespread fuel theft.

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