snapshots

Jan 4, 2019 | 21:05 GMT

3 mins read

Mexico: Why Are Some Consumers Facing Fuel Shortages?

(Stratfor)
The Big Picture

Foreign investors have been able to invest in Mexico's fuel stations for several years now, but thefts have caused shortages that threaten to limit profits and discourage further investment. The problem has prompted Mexican President Andres Manuel Lopez Obrador to move against corrupt employees of state-owned Pemex. But while the fight against insider theft makes progress, the problem of criminal theft from pipelines will remain.

What Happened

Mexico's new president has outlined big plans to fight corruption in his country's energy sector, but for now, the situation appears to be getting worse. In recent days, more than 1,000 stations in the states of Colima, Guanajuato, Hidalgo, Jalisco, Michoacan, Nayarit and Queretaro have experienced fuel shortages. According to reports in the Mexican news media, some of the shortages followed missed shipments from the Salamanca refinery, about 260 kilometers (162 miles) northwest of Mexico City in Guanajuato state. A separate statement from President Andres Manuel Lopez Obrador, however, blamed the shortages on unspecified distribution problems. Still other reports blamed the problem on fuel theft from pipelines that supply the affected states.

While the reports conflict, and the precise cause of the shortages is unknown, one possible contributor was the government's decision to deploy troops to the Salamanca refinery on Dec. 27 as part of an effort to curb fuel theft abetted by employees at the state-owned oil and natural gas company Petroleos Mexicanos (Pemex). Audits and investigations at the refinery may have slowed production, exacerbating the problem posed by continuing fuel thefts at other locations. Whatever the cause, around 75 percent of the affected stations appear to have begun receiving shipments again.

Background

Mexico's 2013 energy reform opened the country's downstream sector — including fuel stations — to private investment. However, fuel theft has been a persistent problem in the country over the last decade. Criminal groups regularly tap gasoline and diesel pipelines to siphon fuel, or even redirect fuel directly from refineries and storage terminals to new destinations for sale on the black market. The problem often forces legitimate buyers — including foreign investors looking to supply their stations — to scramble for alternative supplies or be left waiting until pipeline damage caused by fuel thieves can be repaired.

Why It Matters

After the government's intervention at the Salamanca refinery, its output dropped. Moreover, this scenario is likely to be replicated in the coming years as Mexico's government continues working to curb theft by Pemex employees at other locations.

While further investigations and audits could lead to additional short-term shortages, they will also benefit investors down the road by slowing the pace of widespread theft from refineries. Mexico's government has its work cut out for it when it comes to countering fuel theft — particularly in preventing criminal groups from tapping into pipelines. But, at least for now, corruption among Pemex employees provides a high-profile target for federal authorities to focus on.

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