Pemex storage, pipeline auctions expected to fail

Long-delayed open seasons for fuel storage and pipeline capacity in Mexico are unlikely to gain significant commercial interest, meaning new, privately backed construction is the only way for the market to grow.

Mexico's energy regulatory commission (CRE) approved a resolution this week for state-run Pemex to hold a series of 11 open seasons this year on any additional refined products storage and pipeline capacity it has available.

But in this new process, expected to start between February and March, Pemex will offer such a small amount of capacity that few, if any, private firms are likely to bid, an official with CRE tells Argus.

"… no market player will consider what Pemex is offering in volume as something worth the investment," the CRE official said on condition of anonymity. "The message that we want to send to the market is that private investors are the ones that need to invest."

Pemex was originally expected to hold five open seasons during 2017 so that private companies could bid to use part of its storage and transport infrastructure to help improve the flow of fuel imports under the country's newly liberalized markets. One open season was planned for each of Mexico's regions.

After many delays, just one open season was successfully held in May in the Pacific-coast Baja California and Sonora states. US refining and logistics company Tesoro, now Andeavor, was declared the winner.

A second open season was scheduled for 15 June but it never occurred. At the time, CRE president Guillermo Garcia said limited infrastructure was the cause for the delay. Pemex's chief executive Jose Antonio Gonzalez agreed.

"It is quite a paradox," Gonzalez said after the Mexican congress questioned him on the delays. "We keep saying there is not enough infrastructure, there is not enough infrastructure, but the law says ´Pemex give the market all the infrastructure you have left', that is an irony right there."

The prolonged wait for the regulator and Pemex to reach an agreement on how, when, where and what infrastructure to put up for bid has stopped private investors from pursuing independent projects.

The CRE official told Argus many in the market seemed to be blaming the regulatory agency for the open season freeze.

"So we stopped arguing on how much volume they should offer," the official said.

According to CRE data Mexico needs to invest up to $16bn in pipelines and storage to have a functional market.

"We want the market to stop waiting for Pemex or for CRE," the official said. "We were very naive in thinking that Pemex was going to be a player that enabled investment in midstream, because they will not do it."

Pemex will put up for auction 679,665 bl of storage capacity, which represents 6pc of total fuel storage capacity in the country. On the transportation side, Pemex will make available 157,730 b/d of pipeline capacity, which represents 14pc of total available capacity.

The new open season process will start as soon as Pemex has received official notice, which CRE said could be tomorrow, 22 December. If this happens, Pemex will invite firms to bid for North zone storage terminal access located in Sabinas, Monclova and Nuevo Laredo, as well as the capacity on a 10-inch pipeline that runs between these locations, as soon as 26 December.

Winners will be announced 45 days after the start of the process, which could be 26 February if it starts as planned on 22 December.

On the Pacific coast, where there is a parallel bid to build a storage terminal in Topolobampo, the initial announcement and start to the process will be held 20 days after tomorrow, 22 December. Winners will be announced 45 days later, on 28 March.

Nine other open seasons will be run during 2018, with initial dates starting 40 days after the prior ones and up to 200 days after the first open seasons begins.