Fuel theft behind Mexican pipeline shutdown

A refined products pipeline in southeastern Mexico appears to have been taken offline because of persistent fuel theft, disrupting fuel supply in the states of Veracruz and Puebla, retailers in the area tell Argus.

The pipeline, owned by Mexico's state-run Pemex, connects the 246,000 b/d Minatitlan refinery in Veracruz to Pemex's fuel storage and distribution terminal in Puebla. Puebla is home to the "red triangle," a stretch of the Minatitlan-Mexico pipeline where Pemex says fuel tapping is exceptionally high.

Pemex did not respond to several requests for comment. Local retailers in Puebla and Veracruz say that Pemex has used the pipeline only sporadically in recent months, if at all, in order to curb fuel theft.

"The last time they opened the pipeline … not a single liter made it to Puebla," said Gabriel Bravo, part of the national fuel retailers association's network in the state of Veracruz, citing Pemex officials. "Closing the pipeline was the only way for them to put an end to fuel theft."

Rafael Zorilla Alanis, head of a fuel retailers association in the state of Puebla, said the incident was the last straw for Pemex.

"Nothing made it to the Puebla terminal and Pemex opted for not using [the pipeline] anymore," Alanis said.

Fuel from the Minatitlan refinery is now sent on different routes, sometimes to the nearby Pajaritos maritime terminal on the Gulf of Mexico, then shipped to the Veracruz terminal further north on the coast, sources tell Argus.

The changes have caused turmoil in the region. Puebla fuel retailers with their own trucks drive to the Veracruz storage and distribution terminal. Others rely on Pemex's road distribution network, which is giving priority to stations with low or no reserves. Alanis says that on 31 July, 30 out of the 550 fuel retail stations in Puebla reported fuel shortages.

The situation has also had an impact in Veracruz, as fuel retailers coming from other states clog up the terminal. Veracruz-based Bravo says his trucks sometimes have to queue for up to 36 hours to access the terminal. "One terminal for several states is not enough," he said.

The industry fears fuel prices will eventually rise as a consequence. According to Mexican energy officials, delivering fuel by truck is 14 times more expensive than pipelines.

"Pemex is losing money, subsidizing fuel in this area," Alanis said, adding that prices were likely to increase when Mexico introduces market-driven prices in the area at the end of November.

Illegal tapping has existed for decades in Mexico, but incidents of fuel theft rose 68pc in the first quarter of 2017, with 2,704 recorded incidents, according to company data obtained by Argus. But it has become an even bigger burden as the country began to liberalize its fuel market and seek private investment.

Gasoline and diesel prices have already been set free in northern border states earlier this year. Puebla, Veracruz, and another 18 Mexican states are set to do the same on 30 November.

In parallel to the introduction of market prices, Pemex is also opening some of its fuel storage and pipeline infrastructure to outside companies. By shutting down pipelines in response to fuel theft, market participants believe Pemex is sending the wrong message to potential investors.

In May, Mexico's President Enrique Pena Nieto called for a more aggressive approach to fuel theft, asking police forces and the military to work together with Pemex, the energy, finance and tax ministries.

Reducing the use of the pipeline to a bare minimum seems to have had some positive impact locally. Fuel sales in the state of Puebla, which had been falling since January, appear to be improving.

"Sales are picking up, we're recouping our previous levels," Alanis said, attributing this recent uptick to fuel thieves' declining reserves of stolen gasoline.