Pemex has until 2018 to meet new fuel quality standards

Mexican state oil giant Pemex has until 2018 to meet new fuel quality standards that will affect 40 percent of its diesel production that does not yet comply, the energy regulator said on Tuesday.

Guillermo García, President of CRE, said the new rules, which should go into effect soon, will limit the sulfur content allowed in fuel, posing a challenge for Pemex, and tighten controls for everything from refining to sales.

"Pemex must comply to be able to remain [in the market]. If it doesn't comply with the rules, it will have to decide to export the product or stop producing," García said in an interview.

Pemex lost a decades-long monopoly over oil production in Mexico thanks to a landmark 2014 energy overhaul that also took away its exclusive right to import fuel.

García said that Pemex has projects ready to produce ultra low-sulfur gasoline throughout the country. That is not the case for diesel.

"In the case of diesel, it is just getting underway. They have already made investments but we are giving them until July 2018 to finish them," he said. "It is definitely a challenge for Pemex, but I can tell they are committed," he added.

Battered by the drop in oil prices, Pemex announced cuts of 100 billion pesos (US$5.42 billion) that will affect its industrial arm, charged with modernizing refineries.

The Energy Ministry has granted gasoline import permits, but Pemex is still the only producer in Mexico. Its six refineries produced 275,000 bpd of diesel and 381,400 bpd of gasoline per day last year.

That is not enough for local consumers, so Mexico imports a growing amount of fuel each year, almost exclusively from the United States.

The new quality standard will allow maximum ethanol content in gasoline of 5.8 percent as an oxygenate, a percentage that will likely be kept on hold for a while, García said.

"We are comfortable with that percentage. Some very dramatic, solid information would have to be produced for us to say 'let's raise it,'" García said. "We want to move forward with caution," he added.