Mexico LPG importers prepare to fight new restrictions

Firms claim change to customs law violates principles of fair competition as government attempts to lower prices, write Sergio Meana and Amy Strahan

Mexico's private-sector LPG distributors are prepared to go to court to fight new customs rules that would prevent them from importing LPG without the participation of a state-owned company once their permits expire.

Mexico's finance ministry on 11 June amended the country's customs laws to only allow state-owned firms, such as Pemex, to import or export LPG and refined products through ports and terminals outside of listed customs points. None of Mexico's five LPG sea terminals, which have about 302,000t of storage capacity, are designated customs points. A private-sector LPG importer says it will file an appeal shortly, as will some of its peers. The new rule would also impact rail imports through the eight rail terminals on the US-Mexico border. Truck deliveries would be unaffected as they arrive through approved customs points, but such arrivals are only a small fraction of overall imports of around 8.52bn litres (4.6mn t) in 2020, data from independent statistics agency Inegi show. Around 88pc of this was from the US and 12pc from Canada. The five sea terminals imported around 117,000 b/d (3.7mn t/yr) in 2018, government data show.

Under the revised customs law, private-sector firms seeking a new or renewed import permit would require Pemex or another state-owned company's involvement. Only state-owned firms will be able to import hydrocarbons at non-designated customs sites. This violates the principles of fair competition, Mexican business association Coparmex says. "This reform clearly limits private-sector companies' access to places different to the government's authorised centres in which fuels and crude can enter and exit the country," it says.

The restrictions follow President Andres Manuel Lopez Obrador's announcement of the creation of a state-owned LPG distributor, Gas Bienestar, supplied by Pemex, to help lower domestic LPG prices (see p6). It is the latest move aimed at capping rising retail prices, driven by climbing crude and international LPG prices, in line with inflation.

A legislator from the governing Morena party has proposed calling an extraordinary session to consider reforms that would allow the government to temporarily regulate LPG prices without independent oversight, enabling energy regulator the CRE to cap prices. The government at present can only intervene in price setting if monopoly watchdog Cofece rules that anti-competitive practices are taking place in the LPG market. LPG retailers' association Amexgas in June warned against attempts to establish a maximum price. "Although the intervention would not be unjustified, it could have adverse effects," it said.

Global LPG prices, including those at Mont Belvieu on the US Gulf coast, where Mexico sources the majority of its imports, have risen sharply over the past month, lifting Mexican retail prices in turn. Pemex's posted prices for LPG at Monterrey have nearly doubled over the past year, rising to 18.02 pesos/kg (91¢/kg) as of 19 July from Ps10.97kg in July 2020.

Fractional losses

Mexico's production of natural gas liquids from fractionators, including ethane, propane, butane and natural gasoline, has steadily declined since 2014, falling to around 174,000 b/d this year from 205,000 b/d in 2020, according to the energy ministry, Sener. Nearly all of Mexico's LPG output of more than 3mn t/yr comes from gas processing.

This has made the country more reliant on US LPG imports, with arrivals of propane reaching a record monthly high of 7.2mn bl (581,000t) in December 2020, data from US government agency the EIA show. Imports from the US stood at 3.48mn bl in April, the latest data show. This was down from 4.3mn bl in April 2020, when lockdown measures bolstered residential demand.

Mexico LPG import points