Regan Brown
Mexico's heavy reliance on fuel imports, particularly from the United States, is a significant concern for the country's energy security. In 2022, Mexico imported over 1.8 billion barrels of refined petroleum products from the US, accounting for more than 72% of its domestic fuel consumption. This reliance on imports is due to Mexico's ageing refinery system, which struggles to meet domestic demand, and the decline in Pemex's refining capacity utilisation rates. Mexico's natural gas demand is also increasing, with 69% of its supply in 2022 coming from piped gas imports from the US. The country's energy sector has been open to foreign private investment since 2013, but challenges remain, including a negative trade balance in petroleum products and a growing reliance on US natural gas, which poses risks to Mexico's energy security.
| Characteristics | Values |
|---|---|
| Mexico's rank in global crude oil production in 2022 | 13th |
| Mexico's rank in global crude oil reserves in 2022 | 21st |
| Mexico's rank in global refined capacity in 2022 | 16th |
| Mexico's rank in global logistics infrastructure in 2022 | 5th |
| Amount of Mexico's heavy crude imported by the US in 2022 | Over 637 million barrels |
| Amount of refined petroleum products exported by the US to Mexico in 2022 | Over 1.8 billion barrels |
| Percentage of Mexico's domestic gasoline, diesel, natural gas, and jet fuel consumption accounted for by US exports in 2022 | Over 72% |
| Percentage of total government revenues in 2022 accounted for by earnings from the oil industry | Almost 20% |
| Amount of investment by companies in Mexico's oil and gas sector from 2021 to 2024 | USD 18 billion |
| Percentage of fuel sold in Mexico in 2022 that was smuggled or stolen | 15% |
| Mexico's rank among the largest natural gas importers in the world | At or near the top |
| Percentage of Mexico's natural gas demand met by piped gas from the US in 2022 | 69% |
| Percentage of US electricity consumption from Mexico in 2023 | 0.14% |
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What You'll Learn
Mexico's ageing refinery system struggles to meet domestic demand
Mexico's ageing refinery system, combined with weaknesses in its hydrocarbon sector, has led to a struggle to meet domestic demand. The country's refineries have seen a decline in capacity utilisation rates, falling from 72.43% to 49.74% between 2013 and 2022. This has resulted in a significant gap in the domestic market, leading to increased imports of motor fuels such as gasoline and diesel. Mexico's production of hydrocarbons, including crude oil and natural gas, has also been impacted, undermining the country's ability to serve its domestic market.
Mexico's energy sector faces challenges due to its heavy reliance on US natural gas, which accounts for nearly 70% of its demand. This high dependence on a single import source poses significant risks to the country's energy security. The increasing need for natural gas, combined with limited gas storage capacity, further exacerbates the issue. Mexico's electricity transmission network also suffers from severe congestion, impacting its ability to meet domestic energy demands.
The country's energy reform in 2013, which opened the energy sector to private investment, was aimed at addressing these challenges. However, the reforms have had limited success, and Mexico continues to import a significant proportion of its energy needs. In 2022, the United States exported over 1.8 billion barrels of refined petroleum products to Mexico, representing more than 72% of Mexico's domestic consumption.
While Mexico has made efforts to upgrade its logistics infrastructure and increase investment in the energy sector, its ageing refinery system continues to struggle to keep up with domestic demand. The decline in capacity utilisation rates and the impact on hydrocarbon production have contributed to the country's reliance on energy imports, particularly from the United States. Mexico's energy security remains a critical concern, and further reforms and investments may be necessary to ensure the country can meet its domestic energy demands.
Mexico's energy sector is crucial to its economy, with earnings from oil and gas accounting for almost 20% of total government revenues in 2022. The country's reliance on energy imports, particularly from the United States, has significant economic implications and underscores the urgency of addressing the challenges faced by its ageing refinery system.
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Pemex's refining capacity has declined
Pemex, or Petróleos Mexicanos, is a key player in Mexico's oil and gas industry, which is a crucial component of the country's economy. However, Pemex has faced challenges in recent years, particularly in its refining capacity.
Between 2013 and 2022, the capacity utilization rates of Pemex's refineries declined significantly, from 72.43% to 49.74%. This decrease in refining capacity has had a direct impact on the production of petroleum products, creating a gap in the domestic market that has fuelled imports, particularly of motor fuels such as gasoline and diesel. In 2022, imports of refined products, including gasoline and diesel, amounted to $47.12 billion, representing 63.6% of Mexico's overall imports of petroleum products.
There are several factors that have contributed to Pemex's declining refining capacity. One factor is the less-than-adequate levels of capital expenditures. Inadequate investment in refinery infrastructure and technology can lead to a decline in refining capacity over time as equipment becomes outdated or inefficient.
Another factor is the increase in demand for natural gas, which has placed additional pressure on Pemex's refining capacity. Natural gas demand in Mexico has been growing, with 61.1% of the country's total power generation coming from natural gas in 2022, up from 49.1% in 2013. This shift towards natural gas has reduced the demand for refined petroleum products domestically, further impacting Pemex's refining capacity.
Pemex has also faced challenges in the form of competition from international energy companies since Mexico amended its constitution in 2013 to allow foreign private investment in the energy sector. This has likely impacted Pemex's market share and ability to invest in refining capacity.
The decline in Pemex's refining capacity has had significant implications for Mexico's trade balance and energy security. With a decrease in domestic refining capacity, Mexico has become increasingly reliant on imports to meet its fuel demands, particularly from the United States. This heavy reliance on a single import source for natural gas, which accounts for nearly 70% of its demand, poses risks to Mexico's energy security, as interruptions in supply from the US can have significant impacts.
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Mexico's high dependence on US natural gas
Mexico's heavy reliance on US natural gas, which accounts for nearly 70% of its demand, poses significant challenges to its energy security. In 2023, the United States exported a record-high volume of natural gas to Mexico, totalling 6.2 billion cubic feet per day, an increase of 8% from 2021. This reliance on a single import source for natural gas is concerning, especially considering Mexico's high dependence on this fuel in its power matrix and limited gas storage capacity.
Mexico's increasing need for natural gas is driven by its growing industrial sector, where natural gas accounts for 33% of demand. The country's electricity transmission network is congested, and there is a lack of substantial renewable capacity in development, further increasing the demand for natural gas. In 2022, 61.1% of Mexico's total power generation came from natural gas, up from 49.1% in 2013. This shift towards natural gas is due to its availability and lower cost compared to other fuels.
The high dependence on US natural gas has led to concerns about energy security in Mexico. Interruptions in the supply of natural gas from the US, such as during the 2000 California energy crisis and Winter Storm Uri in Texas in 2021, have impacted Mexico's energy supply. These events highlight the vulnerability of Mexico's energy security when relying heavily on a single source of natural gas imports.
To address this issue, Mexico could focus on diversifying its energy sources and increasing its renewable energy capacity. While some industries in Mexico may accelerate electrification to reduce carbon emissions, energy-intensive sectors like cement, iron, and steel production will be more challenging to decarbonize. Nonetheless, investing in renewable energy sources and improving energy transmission networks can help reduce Mexico's dependence on US natural gas and enhance its energy security.
Additionally, Mexico's aging refinery system struggles to keep up with the demand for petroleum products, leading to increased imports from the US. In 2023, Mexico was the largest export market for US petroleum products, including gasoline, diesel fuel, and propane. These imports from the US contribute to Mexico's trade deficit in petroleum products, which amounted to $47.12 billion in 2022, or 63.6% of the country's overall imports of petroleum products.
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Illegal fuel imports and illicit blending of refined products
Mexico has been battling illegal fuel imports and illicit blending of refined products, which poses a risk to consumers who purchase counterfeit fuel and undermines sales from legitimate suppliers. The Mexican government estimated that more than 180,000 barrels per day (b/d)—or 15% of all fuel sold in the country in 2022—was smuggled or stolen. Illicit suppliers undercut the market by avoiding taxes through mislabelling fuel imports as they enter Mexico from the US, or by creating dangerous blends with lower-cost components like methanol, naphtha, ethanol, and base oils. These illegal practices rose sharply as the Covid-19 pandemic began to ease and the Mexican government began taxing fuels at the full rate.
OPIS, a Dow Jones Company, first reported on the issue of illegal imports in February 2021. In response, Mexican President Andres Manuel Lopez Obrador ordered the army to take control of customs points along the US-Mexico border to better police imports. As a result, atypical imports fell to 27,600 b/d in March 2021, but by August 2021, questionable import volumes had increased to 106,900 b/d. As the Mexican government subsidised fuel prices, illicit suppliers began blending more fuel with cheaper components to undercut legitimate suppliers on price.
Illegal blends containing methanol can be particularly damaging as the product can produce formic acid, which can affect a vehicle's engine performance and efficiency. Illicit blending is more likely to occur among transportation companies and small to mid-sized businesses, rather than larger companies. The Mexican energy regulator CRE has said it plans to issue regulations to force self-consumption operations to prove the origin of their fuel and ensure that it is not from illicit suppliers.
In 2023, Mexico established measures to combat the illicit fuel market, including the temporary suspension of imports of fuels from the US by truck, as it stepped up inspections of permits. In October 2023, Mexico added import controls to fuels and chemicals, restricting the import of dozens of petrochemicals and some unfinished refined products that the government says are used as blending components in ways that break or skirt tax and fuel theft laws.
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Mexico's negative trade balance and weaknesses in the hydrocarbon sector
Mexico's negative trade balance is a reflection of the weaknesses in its hydrocarbon sector. Crude oil production and exports have long been a priority for policymakers due to their importance as a source of government revenue. In 2022, Mexico ranked 13th globally in crude oil production, with the US importing over 637 million barrels of Mexico's heavy crude. However, the development trajectories of natural gas, refined products, and petrochemicals have favoured demand and/or import increases since the early 2000s.
Natural gas demand has soared in line with greater power generation capacity, and Mexico's share of imports in the total domestic supply of natural gas stood at 84.6% during January-September 2022, up from 54% in 2013. This increase in imports can be attributed to the easy access to inexpensive natural gas from Texas, which meets the increasing domestic demand.
Mexico's refining capacity has also declined, with capacity utilization rates falling from 72.43% to 49.74% between 2013 and 2022, resulting in a significant gap in the domestic market and fueling imports of motor fuels such as gasoline and diesel. Pemex, the state-owned oil company, has faced challenges in refining and a sharp deterioration in its production capabilities, particularly in petrochemicals.
In recent years, policymakers have sought to boost crude oil processing to increase motor fuel production and reduce the country's trade deficit. However, if crude output remains stagnant, this strategy may cut into exports of Mexico's most important commodity and fail to reduce the trade deficit.
Additionally, Mexico has been battling illegal fuel imports and illicit blending of refined products, which pose risks to consumers and undermine legitimate suppliers. The government's taxation policies and fuel subsidies have influenced the volume of fuel illegally sold in the country.
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Frequently asked questions
Mexico has an ageing refinery system and is unable to produce enough refined fuel to meet domestic demand. In 2022, the US exported over 1.8 billion barrels of refined petroleum products to Mexico, accounting for 72% of Mexico's fuel consumption.
Mexico's refining capacity has decreased over the last decade. The utilisation rates of refineries declined from 72.43% in 2013 to 49.74% in 2022, creating a gap in the domestic market.
Mexico has been trying to process higher volumes of crude oil to boost production of motor fuels. However, if crude output remains flat, this strategy may cut into exports of Mexico’s most important export commodity.
Illegal fuel sales have undermined sales from legitimate suppliers and posed risks to consumers who purchase counterfeit fuel. In 2022, the Mexican government estimated that 15% of all fuel sold in the country was smuggled or stolen.
