Mexico's Pemex has been allowed to keep selling high sulfur diesel, which will enable the company to maintain its share of the refined products market by limiting competition, sources said Sept. 1.
Mexico's Energy Regulatory Commission (CRE) has extended a permit that allows Pemex to sell high sulfur diesel in the south of the country, where most of its production and distribution terminals are located. The permit had been granted by the CRE in April and expired Sept. 1.
"Pemex is given an extension to the authorized period to supply diesel with 500 parts per million in the zones of influence of the terminals Escamela, Tierra Blanca, Perote, Jalapa, Tehuacan, Oaxaca, Iguala, and Veracruz," the commission said in an Aug. 27 resolution.
The resolution did not specify the length of the extension.
CRE could not be reached for comment.
Pemex is being exempted in those areas from meeting national environmental regulations that came into effect in 2019, which were aimed at reducing emissions and replicating regulations in neighboring countries.
The CRE move, which has been criticized for benefiting the state oil firm, will effectively limit the growth areas to private importers, giving Pemex a niche market to sell its diesel, sources told S&P Global Platts.
Private importers are required to comply with the low sulfur diesel regulations while it is clear that Pemex's refining system is unable to meet the specifications, Marcial Diaz, a lawyer at Mexico-based consultancy Lexoil.
"It's not a fair market if the regulator is unfair," said Diaz, adding that Pemex cannot produce low sulfur diesel because its refineries process heavy, high sulfur crudes, and its aging plants have yet to be upgraded.
US refiners produce very little high sulfur diesel, and export small volumes to Mexico. In June, the US exported 6.5 million barrels of distillates to Mexico, of which just 15,000 barrels was high sulfur.
Pemex markets its high sulfur diesel in the south of the country at the same price private companies sell their more costly imported low sulfur diesel in the center and the north, said an importer who declined to be identified.
"They are effectively shutting us out of the southeast," the importer said.
Santiago Arroyo, a Mexico-based energy consultant, agreed Pemex is unable to meet the quality standards of the regulation, but blamed a lack of financial resources inside the state oil company rather than its technical capabilities.The lack of capital has already started having evident repercussions on the operation of the refineries, Arroyo said, like the lower output at Tula, the newest of the refineries.
Run rates at the Tula refinery, near Mexico City, fell to their lowest in over ten years in July to 33,475 b/d from, data by the Energy Secretariat (SENER) showed Aug. 31.
"Being the most modern, the Tula refinery can only process light crude, which also requires other components," Arroyo said.
With Pemex's limited resources, the company has decided its more economical to reduce operations at Tula, he said.
Pemex did not reply to requests for comment.
In July, Pemex produced 92,541 b/d of diesel out of its six refineries, a 38% decrease compared to the same period in 2019, SENER data showed. In the same month, Pemex imported 79,802 b/d. Total diesel sales were 208,709 b/d in July, the data showed.
