Mexico to require ULSD in most of country in 2019

Market: Oil products
28/12/18

Mexico will move ahead with implementing a switch to all ultra-low sulphur diesel (ULSD) for vehicle use in most of its territory on 1 January, despite earlier discussions about delaying the requirement.

Some cities in the center of the country will be temporarily excluded, the energy regulatory commission (CRE) said in its decision today. This expands a requirement that previously only applied to three major cities, highways and towns on the border with the US.

The switch comes despite some regulators previously indicating that this requirement could be delayed, a decision that Mexico's energy ministry also requested.

Argus estimates the regulatory change will prompt close to 150,000-180,000 b/d in additional ULSD demand in the country. Most of this product will have to be imported as state-owned Pemex's domestic ULSD production is roughly 15,000 b/d.

Central cities supplied by the 315,000 b/d Tula refinery and 220,000 Salamanca refinery will be excluded, as these refineries do not produce enough ULSD to supply the area, nor is there enough infrastructure to bring in more ULSD. Excluded zones include some municipalities in the states of Aguascalientes, Mexico, Guanajuato, Hidalgo, Jalisco, Michoacan, Queretaro, San Luis Potosi and Zacatecas. CRE said that the exclusion for the central areas will end on 30 June.

"By 1 July all the country will be required to use ULSD, no exceptions," the CRE said.

For this to happen, CRE prepared a timeline in which different market participants will have to ensure they are ready to supply ULSD nationwide.

Producers, essentially referring to Pemex, will have to guarantee ULSD supply by 1 May. Transportation and storage companies and distributors will have to guarantee ULSD supply by 1 June, while retailers have until 30 June to prove they can supply ULSD.

The CRE did not explain how the regulatory agency plans to control or sanction market participants if they sell regular diesel in areas requiring ULSD.

CRE is an autonomous entity, while the head of the energy ministry is a political appointee. But CRE's autonomy does not extend to its budget, which congress cut by 31pc for next year.

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