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Gasoline, ethanol markets wait for clarifications on Mexico's biofuels blending

October 24, 2017 (4:26 mins)



Mexico's Energy Regulatory Commission has been working for the past couple of years on NOM-016 to update the country’s gasoline regulations, including standards around blending ethanol to the fuel supply. But an injunction stopped an increased blend of 10% and moved it back to 5.8%. Editors Josh Pedrick and Silvia Struthers delve into how the injunction was received by biofuels markets, why the injunction is applying to Pemex right now and how the market is turning to MTBE while awaiting a resolution.

For more on this topic, read the feature Mexican ethanol blending faces legal hurdles following injunction.


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Podcast Transcript


Gasoline, ethanol markets wait for clarifications on Mexico's biofuels blending


With Joshua Pedrick and Silvia Struthers


JOSHUA PEDRICK: Welcome to the Commodities Spotlight Podcast from S&P Global Platts, I’m Josh Pedrick, covering ethanol here at Platts, here with Silvia Struthers who covers Latin American refined products markets. Today we’re talking about the legal challenges facing Mexico's ethanol blending program.


SILVIA STRUTHERS: Thanks Josh. The Mexican Energy Regulatory Commission has been working over the past couple of years to update its gasoline regulations. The big new rule is known as NOM-016. A big driver for this new rule was to align US and Mexican gasoline specifications so it would be easier to export from the US to Mexico. And part of that was to increase the ethanol content in gasoline, right Josh?


JOSH: Welcome to the Commodities Spotlight Podcast from S&P Global Platts, I’m Josh Pedrick, covering ethanol here at Platts, here with Silvia Struthers who covers Latin American refined products markets. Today we’re talking about the legal challenges facing Mexico's ethanol blending program.


SILVIA: Thanks Josh. The Mexican Energy Regulatory Commission has been working over the past couple of years to update its gasoline regulations. The big new rule is known as NOM-016. A big driver for this new rule was to align US and Mexican gasoline specifications so it would be easier to export from the US to Mexico. And part of that was to increase the ethanol content in gasoline, right Josh?


JOSH: Exactly. The US uses ethanol as the main oxygenate in its gasoline and because the Renewable Fuel Standard mandates that refiners and importers add biofuels to transportation fuel. So if Mexico tweaked their gasoline infrastructure to reflect that in the US, exporting gasoline there would be easier. NOM-016 originally said that ethanol could be blended with gasoline up to 5.8% but in June that number was bumped up to 10%. The rule excludes Mexico City, Guadalajara and Monterrey.


SILVIA: But in September there was an injunction filed with the courts. And then two weeks ago the court granted that injunction, stopping the 10% blend and rolling it back to 5.8%. How did ethanol market participants in the US take that news, Josh?


JOSH: They were pretty cautious in their reaction. The Mexican market has been slow to develop. Kingsman, the agriculture analysis unit of Platts, estimates that Mexico will consume 200 million liters of fuel ethanol in 2017, and that's only up 30 million liters from 2016. So the injunction is definitely a setback, but it isn't definitive. And right now it only applies to Pemex, though the attorneys in the case said that could change, didn't they?


SILVIA: Yes. I spoke with Juan Machado and Carlos Del Razo, two attorneys representing the plaintiffs. They said that Pemex is the main company importing, blending and distributing fuel in Mexico right now so it made sense to ask the injunction to just apply to them for now. But it could be expanded if they think it's warranted.


JOSH: Did they talk about what prompted the legal challenge?


SILVIA: They said it was motivated by environmental concerns. Air pollution in Mexico is a serious concern. So the injunction was filed to try to keep emissions down. Machado said, quote, "Our intent is not to stop energy reform but to demand that the judge forces the CRE not to ignore the environmental variables that are very important in a country that is heavily polluted.”


JOSH: That's a really interesting argument. Especially considering the US blends ethanol largely as an environmental move to reduce greenhouse gas emissions. There's another hearing on November 15, but the full case could take over a year to resolve. So we'll have to see what kind of evidence is presented by both sides and what the court decides in the end. But until then the injunction is in place.


SILVIA: Mexico uses MTBE as its primary oxygenate in gasoline and that'll just continue while the ethanol case is worked out. Even after the case is resolved MTBE will be a viable competitor and ethanol would have to carry a price advantage to justify blending.


JOSH: And, of course, while the injunction is in place, ethanol can still be blended at 5.8%. Platts will continue watching this situation, so keep an eye on Platts.com for more news and analysis. You can also find price assessments and content in the Biofuelscan and US Marketscan. Thanks for listening.





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