Mexico mulls stricter permits for fossil fuels, petchems

Author: Claudia Espinosa

2020/12/22

  • 30 Dec deadline for public comment on controversial draft
  • Competition regulator issues opinion against draft
  • Long-term effect may reduce energy sector competition
  • Implementation may be as early as Jan ‘21
  • Draft says government could cancel permits early

HOUSTON (ICIS)--Dozens of Mexico-focused energy and petrochemical market stakeholders have commented on a controversial draft regulation from Mexico’s economic ministry and energy ministry (SENER) that could give the government much greater discretion in granting import and export permits requested in 2021.

For the export permits, the products include natural gas, LNG, oil and refined products. For the import permits, the products covered include crude oil, refined products such as gasoline and base oils, olefins and aromatics.

If adopted, the changes would give the Mexican government more discretion to cancel the permits.

Article 57 of the draft, for example, would allow SENER to cancel an import or export permit that has not been used in 30 calendar days. This could be highly problematic for seasonal markets.

Article 47 would allow SENER to withhold permits if it determines in its energy-balance analysis that granting the permit would affect energy security or a product’s supply level in Mexico.

Energy attorneys said that “energy security” is a legally undetermined term, which would give SENER a broad margin of discretion evaluating applications.

Mexico’s current federal administration has been consistent in promoting a nationalistic energy agenda that puts state-run energy producer Pemex and the state-run utility CFE at the centre of the country’s economic development. This agenda has at times put it at odds with the energy companies with whom it is engaged in ongoing legal battles over prior changes.

REACTION
Market sources said two changes that stood out to them from the draft were the exclusion of a previously available 20-year permit for certain products and a requirement that applicants for a five-year permit provide detailed customer information.

Mexico’s anti-trust regulator COFECE also highlighted these two changes in its detailed 21 December opinion against the approval of the draft. Its non-binding opinion focused on the lack of competition to Pemex in the fuels market and the barriers the draft would erect in the permitting process.

The draft’s parameters, however, could also hurt Mexico’s long-term energy prospects. Once production of crude and natural gas from Mexico’s post-energy reform bidding rounds increases, the new permitting structure would complicate export of product not consumed in the domestic market. It could also complicate the export of LNG, which does not currently have an established permitting process in Mexico.

A former SENER official who reviewed the draft said the proposal duplicates requirements already requested by other ministries involved in vetting companies involved in Mexican import and export processes. The former official also said it is generally broad enough in many parts to leave it open to interpretation, including the definition of “energy balance”.
“The [draft] regulation is so bad, it is left to be interpreted by government officials and the evidence an applicant can present,” the former official said.

TIMELINE
The draft regulation was posted on 1 December and current rules require it remain posted for comment for 20 business days or until 30 December. This means it could mostly be made official upon publication in Mexico’s federal official gazette (DOF) as early as the first full week of January.

The draft says it would not affect existing permits, though the potential new regulation would apply to new permit requests.

The current federal administration has previously pushed its draft regulations for early DOF publication. This has proven helpful for market participants involved in subsequent lawsuits challenging the regulations, where some favourable rulings have been based on such grounds.

It is currently unclear whether this draft regulation would violate the US-Mexico-Canada Agreement (USMCA) or World Trade Organization (WTO) trade rules.

The list below shows some of the products that could be affected by the proposed changes to the export permits. It is subject to change.

EXPORTS POTENTIALLY AFFECTED
Natural gas
Liquefied natural gas (LNG)
Crude oil
Gasoline
Diesel
Jet fuel
Mixtures of butane and propane
Source: CONAMER

The list below shows some of the products that would be affected by the proposed changes to Mexico’s import permits. It is subject to change.

IMPORTS POTENTIALLY AFFECTED
FOSSIL FUELS
Crude oil
Liquefied Petroleum Gas (LPG)
FUEL AND REFINED PRODUCTS
Mineral oils
Naphtha
Gasoline
Jet fuel
Base oils
Diesel
Ethanol
Fuel oil
NGLs
Butane
Propane
Mixtures of butane and propane
AROMATICS
Benzene
Toluene
Paraxylene (PX)
Orthoxylene (OX)
Mixed xylenes (MX)
Styrene
OLEFINS
Ethylene
Propylene
Butylene
Butadiene (BD)
Source: CONAMER

Additional reporting by Al Greenwood and Amanda Hay