Pemex to cut fuel prices as competition looms

OREANDA-NEWS. June 26, 2015. Mexico's state-run Pemex plans to cut fuel prices and diversify its supply ahead of the landmark opening of the retail market on 1 January 2017.

"We must take into account that in the immediate future, price will be a decisive variable for the consumer," Alejandro Mart?nez Sibaja, head of Pemex's gas and basic petrochemicals subsidiary (PGPB) told Mexican franchise owners at a recent forum.

Pemex is hoping to maintain a fruitful relationship with distributors association Onexpo after 1 January 2016, when franchise owners will be able to acquire refined products from sources other than Pemex for the first time. Refiners on the US Gulf coast pose the most conspicuous alternative. On 1 January 2017 prices will be set by the market, not government mandate.

"It is important that [our] price is not superior to the most competitive import prices," Sibaja said.

To remain competitive, Pemex has begun to widen the range of products and services available at its fuel stations. Mexico recently passed legislation allowing stations to provide compressed natural gas, LPG and gasoline mixed with ethanol.

Foreign brands such as BP or Shell could take advantage of the reform, seeking to beat Pemex with lower prices but also better service. In Mexico, criticism has focused on quality disparities among franchises, including some selling incomplete liters.

Existing players could also expand businesses. Mexico's FEMSA, which at the end of 2014 ran 227 franchises under third-party agreements, said it will seek to acquire the facilities once the market opens and further expand.

"We expect that FEMSA's fuel business will run on modest margins but that it will generate attractive returns, potentially improving as we grow in scale," the firm said in its final 2014 quarterly report.

Pemex is looking for private-sector partners to maintain its local operations.

Petroleum products sales in Mexico, which currently includes 11,000 stations, totaled 1.385mn b/d in 2014, or 4.8pc less than in 2013, when sales averaged at 1.456mn b/d.

Pump prices have been frozen since 1 January and will remain flat until the end of the year. Although prices vary in each state, maximum price per liter or gallon? for Magna is 13.57 pesos (\\$0.88), Premium is at 14.38 pesos and Diesel at 14.20 pesos.