Mexico's oxygenates sector — long dominated by methyl tertiary butyl ether (MTBE) — could face market pressures to move toward ethanol as an octane enhancer for gasoline in 2020.
MTBE will likely continue to be the prevailing enhancer, but further expansion of private suppliers in 2020 could set up an ethanol/MTBE battle south of the border.
MTBE and ethanol are added to gasoline to lift the octane content, and allow for a more complete burn at the tailpipe. The competition between MTBE and ethanol is a familiar fight, with ethanol producers and oil refiners first locking horns over nearly two decades ago in the US. Ethanol moved ahead, with the powerful corn lobby prevailing as MTBE was phased out in 2007 after several states banned it over concerns about drinking water contamination if the product leaks from underground storage tanks.
The competition in Mexico has been fueled by concerns over how ethanol burns at the higher altitudes of many major Mexican cities. Mexico City is 7,400 ft above sea level, compared with Denver, Colorado's elevation of 5,130 ft.
Mexico's energy regulatory commission (CRE) decided in June 2017 to allow the use of a 10pc concentrate of ethanol (E10) in gasoline except for the three major cities: Mexico City, Guadalajara and Monterrey. The commission argued there was not enough information about how ethanol burned at higher altitudes and in densely populated areas.
CRE ordered a more comprehensive study from the Mexican petroleum institute (IMP), which found no significant statistical differences between emissions with cars tested using E10 concentrates against those using MTBE. The study also found that older cars issued higher emissions, regardless of the additive used.
Cheaper prices
If the battle was purely economics, ethanol would be the clear winner once infrastructure is built. Ethanol costs about 150¢/USG delivered to Mexico's east coast, while MTBE is priced around 225¢/USG fob. Economics have won out in some informal ethanol distribution enterprises, which sell ethanol for drivers to blend themselves in the tank. Formal retailers are asking the government to crack down on the practice.
Distribution is a major market force, and ethanol faces transportation constraints as it is typically blended just prior to retail distribution. Separate tanks holding ethanol and petroleum components are needed for storage, whereas MTBE can be blended at any point in the supply chain. Mexico has little existing ethanol infrastructure, and even plans for expanding conventional storage tanks have been slow to develop.
Political barriers
With ethanol being less expensive and the environmental benefits to MTBE roughly equal, the question remains what is preventing its wider use in Mexico's three biggest cities? One answer appears to be state-owned Pemex, which maintains that MTBE is a better additive for Mexico's particular conditions.
The E10 standard first allowed in the past administration would make it easier to import gasoline from the US, since having the same standard in both countries reduces the costs of importing a "boutique product" such as gasoline with MTBE, which is prohibited in the US.
The administration of President Andres Manuel Lopez Obrador has called to reduce the country's fuel imports from the US. But the government is also on an austerity drive and wants to lower energy prices — which could again favor ethanol if there's an investment in blending infrastructure.
As it continues to evolve, the Mexican octane market will remain dynamic.
On average, Mexico takes about two thirds of US-produced MTBE, an important export market for the remaining makers. Heading into 2020, Gulf coast supply of MTBE has tightened, with a third of the market offline for about the first two months for a major turnaround at Huntsman's Port Neches, Texas, plant. That tightness could spark a wider opening for ethanol.
By Steven McGinn
