February 21, 2019

Mexico: Refinery Fuel Market Outlook

In Mexico fuel demand is driven upward by economic and population growth. The transport sector is expected to be one of the key drivers of fuel demand in the coming years, spurred by an increase in Mexico’s vehicle fleet.

Mexico’s president, Andrés Manuel López Obrador, has set out a plan to build a new oil refinery (400 Mbpd capacity) with construction set to begin as soon as next year. It is estimated that it would cost $8 billion. He has also announced plans to reactivate the current refineries. Success is yet to be seen, as rampant corruption and political opposition are major obstacles. In addition, former governments have made such promises (i.e. build a grassroots refinery) and failed. 

Projected supply and demand of gasoline (including biofuel) and diesel are shown below. Despite the forecasted population and vehicle fleet growth, the increment in transportation fuel prices due to the additional tariffs and taxes imposed by the government will slow down demand growth. Demand of gasoline is projected to increase at a CAGR of 0.5%, and demand of diesel is projected to grow at a CAGR of 0.3% through the study period (2014-2040). Without major investments, the gasoline and diesel deficit is forecasted to remain at a high level through 2040.

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The current and future outlook of the supply and demand of transportation fuels (gasoline and diesel) in Mexico seems gloomy. PEMEX is currently in a bad shape financially. The national political and economic climate and the rampant corruption make it unlikely to fix current refineries and more so to build a new one.  The diesel and gasoline production rates have already reached low record levels, and the supply deficit is projected to remain.  Without investment the Mexican refining sector will also struggle to meet increasingly tighter sulfur regulations. 

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