MEXICO CITY — American drivers have it good compared to their Mexican counterparts who on average pay 135% more for gasoline, according to data compiled by Hart Energy.

Gasoline prices in Mexico usually exceed U.S. prices due to higher import and logistic costs related to a deficit of domestically-produced gasoline and illicit fuel trade, according to details revealed by state-owned Petróleos Mexicanos (Pemex) in its 2022 Form 20-F.

Higher gasoline prices also impact government tax collections.

When the U.S. dollar and oil prices rise, Mexico’s government lowers its quota, or collections received for its Special Tax on Production and Services (IEPS). When the dollar and oil prices fall, the government boosts the quota to collect more taxes.

“The price of gasoline has become a buffer for tax collection, which has fallen as a result of the economic slowdown,” Erick Sánchez Salas, Rystad Energy’s vice president of business development, told Hart Energy on July 5 from Mexico City. “Lower the price, increase the IEPS and [you] have a greater margin to collect.”

The average price of regular gasoline in Mexico was $4.82/gallon (84.30 pesos per gallon) in June, Mexico’s consumer protection agency PROFECO revealed July 3 on its website. This compares to around $4.14/gallon a year ago before adjusting for inflation.

In comparison, the average gas price in the U.S. was $3.53/gallon on July 4, the American Automobile Association, Inc. or AAA, a federation of affiliated automobile clubs, reported on its website. This compares to an average price of $4.81/gallon a year ago.

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A lack of domestically-produced gasoline

Mexico’s President Andrés Manuel López Obrador aims to achieve energy auto sufficiency in both the production of crude oil and gasoline by the end of his term in 2024.

But Pemex continues to struggle to significantly boost oil production as its refineries lack the potential to fulfill domestic demand for gasoline due to low processing rates.

“There is no quick fix,” Sánchez said. “Complex and innovative actions are needed to reverse declining oil production, redress debt problems and do something about depleting [oil and gas] reserves.”

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Pemex owns and operates six refineries in Mexico: Cadereyta, Madero, Minatitlán, Salamanca, Salina Cruz and Tula. Combined, the refineries have an atmospheric distillation capacity to process 1.640 MMbbl/d.

Initially designed to process light oil, the refineries are most capable of producing products such as gasoline, jet fuel, diesel, atmospheric gas oil and atmospheric residual crude oil, according to Pemex. However, the company primarily produces heavy oil at present.

The six refineries processed just 0.816 MMbbl/d in 2022, compared to 0.712 MMbbl/d in 2021. In 2022, Pemex imported 0.419 MMbbl/d of gasoline, which represented 52.3% of the total domestic demand for gasoline that year, according to the company’s annual filing.

Ongoing efforts by Pemex to boost the processing capacity of its existing domestic refineries include rehabilitation work to address risks related to mechanical integrity, safety and efficiency improvements. Additionally, construction of the new 0.340 MMbbl/d capacity Olmeca refinery in Dos Bocas, Tabasco, is ongoing and expected to reach full capacity in 2024.

Pemex started to supply oil to the Olmeca refinery in late-June as part of its efforts to “start gasoline production to achieve energy sovereignty,” the Mexican government announced June 30 in a Twitter post.

Internationally, Pemex expanded its refinery base with its January 2022 purchase of a 50.005% interest in Shell Oil Co.’s Deer Park refinery in Texas. Now as the lone owner of the refinery, Pemex aims to boost its overall production of petroleum products and reduce its imports in a move to achieve self-sufficiency in fuels.

Illicit fuel trade

Arguably, Mexico’s second most pressing headwind against fulfilling domestic demand for gasoline is illicit fuel trade. Since 2019, the government has taken steps to reduce the illicit fuel market, but much so in vain, Mexico City-based Pemex said in its annual filing.

Approximately 13,946 illegal pipeline taps were found in 2022 compared to the 11,037 in 2021, according to Pemex. In addition, the company’s facilities continue to suffer “intentional acts of sabotage, terrorism, blockades, theft and piracy … [and] a period of heightened criminal activity, primarily due to the activities of drug cartels and related criminal organizations,” Pemex said.

As of Dec. 31, 2022, there were 6,987 Pemex retail service stations in Mexico, of which 6,942 were privately owned and operated as franchises and the remaining 45 owned by Pemex Industrial Transformation, a Pemex affiliate.

While much of the blame for Mexico’s gasoline shortage is usually cast on Pemex, a number of companies have a retail presence in Mexico including Shell, Gulf, Mobil, BP, Chevron, Valero and Repsol, among others. Despite this Who’s Who list of international retail players, only plans announced thus far by Pemex have immediate potential to improve the situation.