Mexico's energy ministry (Sener) has directed a key regulatory commission to delay for at least a year a requirement that the country switch to all ultra-low sulphur diesel (ULSD) for automotive use on 1 January.
Sener told the energy regulatory commission (CRE) that Pemex's ULSD production is highly insufficient to meet the country's demand.
Implementing the mandate would prompt even higher levels of imports of diesel, which are mostly supplied by the US — a dependency criticized by President Andres Manuel Lopez Obrador.
The request is a "temporary measure to guarantee ULSD supply in the country, avoid increasing the negative trade fuel balance that more ULSD imports would bring and a negative financial effect on [state-run] Pemex that would prevent the company from complying with its mandate," according to the document signed by energy minister Rocio Nahle.
A CRE commissioner who asked not to be named said that the demand is a "whim" as "there is no evidence of diesel supply risks, and Pemex could sell its production for non-vehicle uses, but burning 500ppm diesel has serious effects on the environment and motor engines."
The process of changing a mandate typically requires a committee and formal three- to six-month process, and much of CRE's staff is on holiday until next year, the commissioner added.
CRE has let 60pc of its staff go, mostly short-term contractors, after its 2019 draft budget was cut by 31pc. Lopez Obrador appoints the energy minster, while the commission is an autonomous regulatory agency.
Pemex's ULSD production — with less than 15ppm sulphur — was 15,000 b/d in the week ended 14 December, while 500ppm diesel production was 96,000 b/d for a total production of 112,000 b/d. In the same week, Mexico demanded 381,000 b/d of diesel.
If the rule was to take effect on 1 January, Pemex's 96,000 b/d, 500ppm diesel production would have to be exported and substituted with imports, which already reached 269,000 b/d in mid-December. The ruling would increase import demand by about 35pc based on those figures.
Pemex has also argued that there is not enough storage and transportation infrastructure to managing exporting domestic diesel production while importing more ULSD. The company would likely face these same difficulties if the decision is delayed by a year. International agreements which Mexico has signed such as the Paris Agreement require the switch.
Today, only the country's largest diesel consumption hubs such as Mexico City, Guadalajara and Monterrey, plus drivers on the 11 most-transited highways, must use ULSD with up to 15ppm of sulphur.
| Mexico's diesel supply | 000 b/d | ||
| Source | Week ended 14 Dec | Week ended 7 Dec | November |
| Dometic low-sulphur production | 96 | 72 | 55 |
| Domestic ULSD production | 15 | 20 | 29 |
| ULSD imports | 300 | 343 | 322 |
| — Energy ministry | |||
