PESOS AT THE PUMP

Mexico 2017 | ENERGY & MINING | FOCUS: LIBERALIZATION OF RETAIL FUEL SALES

After a liberalization of the energy market, many foreign energy companies are now looking toward Mexico and its oil and gas reserves as well as the distribution networks.

Mexican and foreign private companies are now able to enter the country's gasoline market for the first time in seven decades. Before the promulgation of the energy reform by President Enrique Peña Nieto, the state-owned company Petróleos Mexicanos (Pemex) had a monopoly on production, commercialization, and distribution of fuel in Mexico. With over 11,000 gas stations in Mexico, Pemex had long been the only option for Mexican consumers.

With the reform, private companies can import and distribute gasoline, as well as own resources from Pemex extraction. Oxxo Gas, a Monterrey-based company, opened the first non-Pemex gas station.
For more than 20 years, Oxxo Gas distributed gasoline through franchise stations under the Pemex brand. In July 2016, for the first time, Oxxo Gas opened a distribution station in Monterrey under its brand and corporate image. In its first stage, Oxxo Gas will transform the image of its 50 stations in the Monterrey area. In the future, they expect to change the image of their 335 stations in 14 states across Mexico.
The Texan company Gulf is also interested in entering the Mexican gas market. In 2016, Gulf Mexico announced its intention to dominate at least 18% of the market. In its future stations, it plans to offer a high-quality service with modern facilities. It is expected to open over 2,000 service stations by the end of 2018. With imported fuel from California and Texas, it has benefited from the energy reform that allows companies to buy fuel abroad and distribute it in Mexico.
Gulf Mexico planned to open its first service stations in Mexico City and Monterrey by 2016, but since the Mexican government announced the liberalization of the oil prices, they decided to put plans on hold until this happens.
Starting in January 2017, the prices of gasoline and diesel will be determined by the market for the very first time. This is a reaction after years of price fixation by the Ministry of Finance and Public Credit. In the past, this situation was not sustainable for the Mexican government; therefore, there were periodical increases in gas prices. Price liberalization will occur in a gradual way, starting in some regions of the country. The government of Mexico expects that by 2018, prices will be liberated in the entire country, allowing free competition among private companies that sell these fuels.
Along with the price liberalization, private companies will be allowed to import gasoline and distribute it. Through September 2016, the Ministry of Energy granted at least 115 permits to private companies to import gasoline; nevertheless, none of these had been used.
National and foreign companies see the price liberalization and the market opening to private companies as a good opportunity to increase competitiveness and grow their operations.
“We will continue to expand our activities in the Mexican market as foreign companies demonstrate more interest in this market, especially midstream and downstream fuel companies", said Francisco Javier Vargas, Director General of Petrogras, a company that owns over 300 service stations in Mexico. He added that increasing safety consciousness is driving modernization and adding more investors into the fray.
Pemex is today the largest company in Mexico, but years of price fixation, ineffective administration, and financial issues have obliged the government to come up with alternatives. The energy reform will allow new players into the arena whose success will be determined by market forces. Being an important producer of crude oil, Mexico still imports gasoline, while fixing prices. It will be a matter of time to see if these initiatives will benefit Mexican consumers.