Jason: From Argus Media, this is "Driving Discussions," a podcast series focusing on the forces affecting North American road fuels. Greetings and salutations, one and all. Jason Metko with you yet again, associate editor of U.S. Products here at Argus. And for this conversation, we're pleased to welcome back our senior reporter, Steven McGinn, as we have an update for you on all things happening in Mexico, including the recent presidential election wrapping up and what that means for the markets going forward. Mr. McGinn, welcome back. Happy summer to you. Last time we talked, we finished with a look of the presidential election south of the border. Now that that's passed and Mexico does have a new president, tell us a little bit about what's happened and what do we expect that's going to happen here.
Steven: Sure. Thanks for having me, Jason. Good to be here. So Mexico elected Claudia Scheinbaum. A scientist by trade, and she's contributed to international climate change reports. And she was elected by quite a wide margin and her party won more seats in Congress. And so that comes with more power. Her party has more power. And so expectations are that she will continue previous administration's policy when it comes to fuel and the refining sector. But during previous administration's six-year run, Pemex increased market share in the gasoline sector, I mean, up as much to 87% in 2023. This up 5 percentage points from 22. And that's a significant jump and goes complete opposite of what those energy reforms set like a decade ago. But that's the way the political directive went.
Jason: So a continuation of over Aduro's [SP] policies, what does that mean for the refining sector?
Steven: Yeah, well, Scheinbaum's specific strategies remain mostly unclear. She's committed to strengthening Pemex and continuing those refining projects, basically cut imports, ramp up refinery. The new Olmeca refinery's crude towers facing some issues. It's not expected to start production on fuel anytime soon. And the two cokers at the Tula refinery, they're expected to start at the end of the year. And that's possible. But that is also delayed. Salina Cruz refinery coker, expected end of 2025. And Pemex owns the Deer Park refinery. It's stable. It's financially stable. But that plant, it's not sending those products to Mexico. They make a lot of fuel oil, but it's difficult to sell, high-sulfur, heavy. It's hard to sell in the open spot market. There's not much demand much anymore for it. But, you know, to modernizing and, well, keeping the refining system run safely, Pemex needs to double their investment on the old refineries.
Jason: He is Steven McGinn. He's our senior reporter. We're talking post-election pontifications here on this edition of "Driving Discussions." Some of the recent events over the last few months regarding gasoline, Steven, what have we seen back the last couple of months? What are we looking forward here through the summer?
Steven: So in March, we saw a very high, relatively speaking, refinery rate in Pemex system-wide process, you know, almost a million barrels a day, like system-wide, which is about 65% of system-wide capacity in April. That dipped to 59%. And while May figures aren't out just yet, they're expected to show lower than that, because in the middle of May, there's a fire at the Tula refinery. Salina Cruz refinery, maintenance work was underway. And then at the end of May, there's an incident at the Salamanca refinery that also pushed those throughputs down.
Jason: So how did all that impact imports into Mexico, more specifically Gulf Coast refineries and gasoline blenders? You and I talked a little bit about this and some of us got together for a story on it, too, Steven.
Steven: Yeah, it was a great collaboration effort. So that really spurred demand for those high octane components, toluene, xylene. So anticipating that increased U.S. gasoline exports from the U.S. into Mexico to meet that demand. We saw a hike in trading activity for Gulf Coast high octane aromatic blending components last week, over the last several weeks, really, at this point. It's about a quarter million barrels sold into the blending pool in the U.S. Gulf Coast during that one week, included commercial grade toluene, 843 grade MX, and a lot of mixed aromatics. And most of that U.S.-produced high-octane aromatic blend stock is for gasoline blended for export into Latin America with, I mean, the U.S.A's closest neighbor is Mexico. And so when refining system is down in Mexico, traders and blenders will step in to send products that way. So it all comes down to the fact that Mexico isn't going to be producing much more gasoline than, you know, what their system can handle, really. They need more imports to make up for that supply. And basically, until that new refinery opens and if and when old refineries are fixed, and updated, and safe, they're just going to need more gasoline and it's going to have to come from foreign shores.
Jason: Steven McGinn, our guest as we talk Mexico here on this edition of "Driving Discussions." All right. So going forward here, if you're a market observer, what are you looking at for clues here?
Steven: So in my view, I think really MTBE is the bellwether for how the fuel market will shape up, the gasoline additive octane booster oxygenate that allows for the more complete combustion of gasoline components at the tailpipe. Right? So the three largest cities, we've talked about this before. The three largest cities need it, Mexico City, Monterrey, Guadalajara. And if Pemex buys gasoline, if Pemex, you know, imports gasoline, if they make gasoline, they need MTBE. Right? So on the big scope, if Mexico takes in more neat MTBE, then their domestic refining capacity is going to be on the rise. But if they take in more finished gasoline, that means imports are having to make up for lower domestic capacity. So, like I said, Mexico needs MTBE. They don't plan to make any more of it. So more MTBE like neat, pure MTBE, that means Pemex refining system is on the rise. But if they take in more finished gasoline, that's an obvious, you know, clue that their refining system is pushing down.
Jason: As always, he is a wealth of information on all things south of the border. Thank you very much, Steven. We'll talk to you on down the line.
Steven: Thanks for having me again, Jason. Appreciate it.
Jason: There he is, Steven McGinn, our senior reporter, covering all things methanol, MTBE, and Mexico on this edition of "Driving Discussions," a production of Argus Media, a leading independent provider of commodity pricing information. Reminder to check out the previous episodes in this series. And for more information on the markets that Steven specifically covers, we invite you to check out argusmedia.com/chemicals/argusmethanolservices.
