Mexico’s downstream monopoly

An analyst from GlobalData has said that despite the imminent phased introduction to a fully deregulated market, new companies wishing to enter Mexico’s downstream oil sector will have a difficult time overcoming the existing monopoly held by state owned Pemex. Carmine Rositano, GlobalData’s Managing Analyst, Downstream Oil and Gas, has stated that although a free market will replace the present regulated system by 2020, there are a number of significant barriers facing companies that wish to compete for a share of the country’s downstream industry.

Rositano said, ‘new entrants will initially find themselves dependent upon Pemex for the necessary infrastructure, such as terminals, pipelines, storage facilities and tank truck deliveries. Building, expanding and improving infrastructure is costly, and it is extremely time consuming to obtain all the necessary approvals from local, state and federal Mexican agencies. Additionally, prime service station locations are already under Pemex ownership and new players would therefore be forced to compete for less desirable locations.’

Oil: Past and present

Research from GlobalData has shown a stagnated demand for oil in Mexico between 2011 and 2013, when the country required 2.1 million bpd, a figure which is set to remain relatively constant over the next few years. This lack of growth, combined with issues of product pricing and taxation, makes private investment in Mexico’s downstream sector a tough sell.

Rositano explained, ‘the forecast for minimal, if any, growth in Mexico’s oil demand entirely overshadows downstream investment opportunities for private capital. No new refineries or upgrade capacity will be required given the cheaper alternative of supplying the market with imports from the neighbouring US. More clarity is needed regarding the financial framework, under which companies will operate in Mexico, that influences capital investment decisions, profitability and free cash flows, and the repatriation of funds to a parent company.’

The analyst concluded that an explicit framework addressing the uncertainties of moving from a tightly regulated to an open free market is necessary for minimising financial and operational risks and allowing companies to develop strategies for participation in Mexico’s evolving downstream sector.

Adapted for web by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/09072014/pemex_mexican_oil_monopoly/