Pemex, the Mexican national oil company, recently published its 2019-2023 business plan which outlines the economic strategy that Pemex and its subsidiaries will adopt and implement during that period. Pemex’s business plan was received with mixed feelings. While some key players of the oil & gas industry understand that the business plan is consistent with the new administration’s envisioned energy policy, others have labeled it as Pemex’s missed opportunity to mitigate the risk of suffering a downgrade in its credit rating, which would be critical for the Mexican NOC. There has been extensive discussion about how Pemex will reduce its debt and how the business plan does not address that issue appropriately. There is also concern about the construction of the Dos Bocas refinery and its financing.
Additionally, the business plan provides an overview of the current context of the energy sector in Mexico and describes the major projects for investment, so we focused on discovering opportunities for foreign investment. After a detailed analysis of the business plan, it is possible to identify three business opportunities for foreign investment: i) Midstream storage and transportation facilities, ii) Pemex’s pending open season procedures to release capacity to store and transport fuels in Pemex’s facilities, and iii) the liberalization of the aviation fuels market.
The Pemex business plan establishes eight major projects to be developed, three of which are midstream projects: i) the Trans-isthmus Project, for the development of pipelines in Southern Mexico, ii) the Peninsular Project, to develop storage and transportation facilities in the Yucatan Peninsula and, iii) the Toltec Project, to develop storage facilities in Central Mexico.
The three projects are intended to attract private investment in Pemex Logística, Pemex´s subsidiary in charge of transportation and storage of fuels and hydrocarbon products, either through investing in the development of such projects or becoming a user of the services. It is important to highlight that the specifics of these large-scale projects are not yet available, given that the new administration published such relevant sections as classified.
Pemex’s pending open season procedures
Pursuant to the Mexican energy reform, Pemex must carry out open-season procedures to release fuel storage and transportation capacity within its facilities. As of today, Pemex has released capacity in Northern and Northeastern Mexico, awarded by means of open season to Marathon Petroleum Corporation.
The most attractive open seasons are still pending. Contracting for storage and transportation capacity in Pemex’s facilities is an opportunity to reserve capacity in already constructed and operating infrastructure in order to store and transport fuel to major Mexican metropolitan areas in Central and South Mexico. It is important to remember that, up until 2014, only Pemex could own and operate such facilities. Now that the market has opened to private investment, access to existing facilities is key to developing the fuels market in Mexico. Having access to such existing capacity will lower logistic and supply costs considerably given the geographical advantage of said facilities, which are close to several of Mexico´s most populated cities including Mexico City, Queretaro, Guadalajara, Toluca and Merida.
Opening of the aviation fuels market
Prior to the Mexican energy reform, the Airports Law and its Regulations established an exclusive right for the partially state-owned companies that operate the different airports in Mexico, such as Aeropuertos y Servicios Auxiliares (“ASA”) and Aeropuertos del Sureste , to carry out the storage, in-line and supply services of aviation fuels into Mexican airports. Private companies could not provide such services.
Within the framework of the legislation enacted pursuant to the energy reform, the Ministry of Communications and Transport and the Energy Regulatory Commission (CRE) eliminated all exclusive rights in the market of aviation fuels. Likewise, the Mexican antitrust authority instructed ASA to incorporate measures to allow new competitors to enter the market of aviation fuels.
Within this context, Pemex intends to become a marketer of aviation fuels and has received several requests from private users to enter into purchase and sale agreements of jet fuel. Demand of jet fuel has shown sustained growth in recent years in Mexico and now private companies may provide storage, supply and retail services of aviation fuels by requesting the relevant permit from CRE. Great business opportunities may arise to provide services in the aviation fuel market, particularly in major hubs like Mexico City and Cancun International Airports.