Pemex freed from limits on wholesale fuel pricing

Pemex no longer has to follow pricing rules meant to curb its dominant power in Mexico's wholesale gasoline and diesel market, the energy regulatory commission (CRE) decided, a move that critics say could allow it to undercut growing competition.

The regulation from December 2018 had forced Pemex to follow a set methodology in determining its rack prices. The methodology was based on US Gulf coast reference prices — including renewable volume obligations — plus adjustments for quality, logistics, a premium for imported product, and Mexico's crude-price adjustment factor known as the K-factor. It softened international price volatility and essentially restricted Pemex from selling below cost or far above market prices.

Without these limits, there are "risks of Pemex selling under cost and losing money, and for private companies the risk is that it will become impossible to compete with Pemex," the president of Mexico's competition watchdog (Cofece) Alejandra Palacios said, adding that the agency will monitor if this change affects the market.

Regulators voted unanimously yesterday to end the rule (A/057/2018), which also required Pemex to post publicly its daily wholesale prices for its 77 distribution terminals. Pemex published its most recent wholesale prices today, as well as discounts — equal to those last posted on 16 November — but it is not clear if it will continue to post these publicly.

The 2018 regulation, crafted under the previous presidential administration that passed the energy reform, was meant to be temporary, until companies other than Pemex supply at least 30pc of the market.

Regulators did not explain the rationale behind the decision. Pemex still controls more than 70pc of the gasoline market. Pemex provided 87pc of Mexico's 717,000 b/d of gasoline demand in September through production of 203,000 b/d and imports of 424,000 b/d, based on Argus calculations of energy ministry data. Private-sector companies provided the remaining 13pc of imports. But for diesel, Pemex supplied only 57pc of the country's 362,000 b/d of demand in September. The share from private-sector companies has grown since minimal amounts in 2018.

The CRE decision could have a "cascade of consequences in the market," Mexican fuel retailers' association Onexpo said today, including possibly being beneficial for Pemex-branded stations. Pemex has lost almost 2,000 of its retail station to competing brands in the past three years.

Onexpo is meeting to analyze the unexpected change today.

The rule had also forced Pemex to give its customers — no matter the retail brand — equal discounts based on volumes and contract length, and could not force buyers to also pay for Pemex transportation services in order to get discounts.

Private-sector importers have been steadily gaining ground in Mexico since 2018 in supplying more gasoline and diesel, but the administration of President Andres Manuel Lopez Obrador has sought to return Pemex to the role of main protagonist in the country's energy market.

By Sergio Meana