TOGY talks to
Midstream necessity in MexicoJanuary 31, 2019
Noé Paredes Meza, the general director of Corporativo UNNE, talks to TOGY about why storage requirements are a key to further progress in the sector, why investing in pipelines in Mexico is riskier than roads and Pemex’s influence on import prices. Established in 1972, Corporativo UNNE is a group of services companies that provide logistics and transportation services by land, sea and air.
• On Mexico‘s fuel storage situation: “Today, security in terms of storage almost does not exist. The Central region of the country is where the situation is more critical. We need to move from three days of storage to 15 days by 2025. These are medium- and long-term projects that should already be under construction so they comply with these policies in due time.”
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How has the energy reform and liberalisation of the fuel market impacted the industry?
The reform has advanced the industry, especially in terms of petrol commercialisation. This has been seen through the opening to new players, the entrance of several international companies as well as domestic ones with their own brands and, of course, in exploration and production of oil wells.
However, in logistics and transportation, things are progressing slower. This is due to the fact that, today, you can commercialise without having any storage. By 2020, there will be a requirement that marketers have storage.
This has led to an absence in substantial advancements in logistics and transportation infrastructure.
How are you reacting to the growth in demand for fuels?
For the time being, we are not planning to invest in pipelines due to the social problems and right of way. There are also other factors that have led us to believe that pipelines are not currently an efficient mode of transportation. The increase in transport activities by road in Mexico is due to infrastructure and an increase in imports – as a consequence of a lack of domestic production – not so much of the reform.
Mexico has had to import products from the Pacific using terminals that did not usually provide this service, such as Acapulco or Mazatlán. Because it used to be more expensive in the Pacific and now this difference is being evened out, we are strengthening our transportation services and updating our fleet.
What is the level of fuel storage in the country?
Today, security in terms of storage almost does not exist. The Central region of the country is where the situation is more critical. We need to move from three days of storage to 15 days by 2025. These are medium- and long-term projects that should already be under construction so they comply with these policies in due time.
Regardless of what the new government decides to do with the reform and plans, this is a matter of national security and guaranteeing market supply, and we must do it not because of a law, but because it is a market need and duty. This requirement for 2025 is very important.
How has Pemex’s role in the market affected fuel transportation by truck?
Trucking for Pemex has existed, before and after the reform. With the reform, we can now provide these services directly to the fuel stations. That was handled by a third party before. The country’s economic conditions are stable, and petrol consumption has increased in the last few years. Thus, I have not seen fear or discouragement among investors in this segment.
One can perceive discouragement in the pipeline segment due to problems with the right of way and theft. But when it comes to storage and distribution in the logistics chain, I see things going full steam ahead.
How is Pemex influencing the capacity for new companies to import fuels?
The price ends up being controlled by Pemex. They handle 95-98% of the market. There has been an effort made by the CRE [Energy Regulatory Commission] to regulate their activity, but they have the infrastructure, the market and they control the prices through the IEPS [excise tax].
One can say the government still has a high influence on prices. At this moment imports are not competitive, first due to the exchange rate and, secondly, due to the price and taxation policy that the government and Pemex are implementing.
How have government agencies created policies that balance industry while providing a strong regulatory framework?
We have observed a significant increase in terms of normativity. Sadly, we have not seen an effect on the market or the operations. Companies have been too slow in implementing new possibilities from the reform, information systems, verifications, etc. Agencies such as the CRE are moving very slowly with paperwork and permits and companies such as UNNE do not have the benefit of having either lawful players in the sector or care for safety.
I understand that there are budget and personnel restrictions that have hindered this type of monitoring. If there is an increase in regulations, it must be accompanied by an increase in the safety of our operations. There is an area of opportunity in speeding up these processes so the benefits reach the operation, the clients and the market with product safety.
What are you considering for the retail and distribution market?
We are worried about prices, because the commitment stated by the new president is to reduce fuel prices. This would mean subsidising them, and that would affect competitiveness and would put a limit on one of the main reasons for the reform: open competition in the energy markets.
However, there is little uncertainty regarding imports, because even though it is not competitive for private companies, Pemex continues to import more than 60% of fuels. Therefore, infrastructure will be demanded, be it by Pemex, BP, Vitol or any of the other players who are today in the market. This will not change, because we do not have enough domestic production or response capacity in the short term. We are sure this will continue to progress. As a result, we will continue to explore and invest in this type of infrastructure.
What are the main needs for the storage and distribution market?
In the storage, distribution and delivery of petrol and other products, the country continues to have a huge need for infrastructure and, regardless of what happens and the decisions the government might make regarding these public policies, this needs to be done.
Mexico has an urgent need to make the logistic chain more efficient, because it is impacting our costs. We have huge room for improvement. We need partners and investors to implement this infrastructure, given the costs and the complexity of operation.
These are activities that were usually carried out by the government, by Pemex specifically. Today, Mexican companies have the opportunity to make them happen in an independent yet more efficient fashion. In this particular segment, things will continue to move forward.
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