Pemex intervention could harm Mexican LPG market, experts warn

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Plans by Mexican state oil company Petróleos Mexicanos (Pemex) to enter the liquefied petroleum gas (LPG) retail business do not bode well for competition, consumers and the company itself, according to local players in the energy sector.

President Andrés Manuel López Obrador announced last week that Pemex would launch a subsidiary called “Gas Bienestar” or “Gas Wellbeing” within three months, and that authorities are working to establish a maximum price for LPG for consumers.

This would be a major policy change, as Mexico liberalized LPG prices in 2017 as part of the 2013 energy constitutional reform.

López Obrador seeks to contain the cost of LPG to households, the main segment of demand for fuel, amid rising global propane prices. LPG can refer to propane, butane, or a mixture of the two.

The residential segment accounts for 55.5% of LPG demand in Mexico, according to September 2020 data from the Sener Department of Energy. The commercial and vehicular transport segments represent around 15% each, followed by industrial demand at 10.8%.

“As we establish a maximum price mechanism, which we are going to establish, we are also preparing the creation of a company to distribute [LPG] at a fair price, ”the president said during his daily press briefing on July 7.

He promised that the price of LPG would not rise beyond inflation and that the profit margins of the new business would be minimal and used only to cover operating costs.

The president accused private sector distributors of selling LPG at “a very high cost,” citing that five companies control nearly half of the retail market. He accused them of engaging in anti-competitive practices.

Concerns about competition in the retail LPG market in Mexico predate López Obrador, as the antitrust authority Comisión Federal de Competencia Económica (Cofece) pointed out last week.

The watchdog noted that he had two ongoing investigations in the market. One seeks to determine whether there is competitive competition in the LPG market under Mexican Hydrocarbons Law, and the other examines possible collusion and price manipulation by distributors.

Cofece said that while Mexico’s Comisión Reguladora de Energía (CRE) has the power to set prices in the LPG market, it can only legally do so after Cofece has determined a lack of competitive conditions through an investigation. official.

The Coparmex business chamber said that the creation of a state-owned LPG retailer would not solve the underlying problem of Mexico’s growing dependence on LPG imports amid stagnant gas production. national production of oil and gas.

Imports provided 65% of Mexico’s LPG consumption in September 2020, according to Sener.

In addition, the measure “is anti-competitive and ineffective in slowing price increases,” the chamber said.

Coparmex said that while it shares the government’s desire for citizens to get the best services at the best price, Pemex’s intervention would limit participation and competition in the sector.

A state-owned company selling LPG at below-market prices “violates the principle of equality that must prevail between players in the energy sector,” Coparmex said.

The group added, “with low production and high import volume, the proposal to offer gas at a lower price is not viable without a return to subsidies as in the past – where Pemex has absorbed the variations. international prices – which would even further worsen the finances of the [company] and result in an anti-competitive practice.

Instead, Mexico should “promote domestic production, take advantage of the country’s gas resources and allow more companies to participate in the increase in supply,” Coparmex said, explaining that it would be a “natural” way to increase the supply. ‘get lower prices.

In a column Friday for Mexico GPI of NGI, The founder of the consulting firm Gadex, Eduardo Prud’homme, noted that Pemex has historically only been involved in the wholesale marketing of LPG.

“So Pemex will now enter a segment that it is little familiar with, which for decades has only been operated by a small group of private companies,” Prud’homme said.

He added: “In its concern to mitigate the rise in the price of LPG, the current government has not considered encouraging the use of natural gas, the price of which is systematically cheaper per unit of energy than gas. LPG.

“He also did not consider how the vast pipeline network could be better used to create new distribution areas, despite the president’s recurring complaint that there is overcapacity in the pipelines.”

LPG accounted for 54.7% of residential fuel demand in Mexico in 2017, followed by firewood (37.4%) and natural gas (7.8%), according to Sener.


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