Reform may not cure Pemex feedstock woes

25 January 2008 23:54  [Source: ICIS news]

MEXICO CITY (ICIS news)--Mexico’s feedstock prices will not necessarily fall dramatically even if an energy reform measure currently in gestation is finally legislated, an industry analyst said on Friday.

"Pemex might well be forced to charge exactly the same prices,” said Andrew Swanson, vice president of chemicals Nexant.

One of the key measures that all parties agree on in the reform talks is that Pemex prices should no longer be set by a committee dominated by the nation’s Finance Ministry. The ministry has always set prices as high as legally possible in a bid to maximise revenue.

Saudi Arabia may discount propane and butane by as much as 30%, but it is a long way from alternative markets, Swanson said. “Mexico's Finance Ministry [officials] see they have a great alternative to discounting: selling to the United States.”

Industry sources complain that none of Pemex’s petrochemical plants run at more than two-thirds of capacity in large part because of state-managed feedstock prices. Some important complexes produce less than 10% of their nameplate capacity.

However, Mexico’s pricing policy is not unusual when compared with the activities of large multinational companies, Swanson said.

The best hope for lower prices would be for Pemex’s internal and external customers to encourage new market players in feedstock supply, if allowed by the reform measure, Swanson said.

“Perhaps a new market entrant could charge less than Pemex and make money or break even in a bid to steal market share,” Swanson said.

Mexico’s energy reform now looks set for debate by the nation’s legislature in April.

By: Alex Manda
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