Mexico defers clean diesel rule for Pemex

On Wednesday, Mexico’s energy regulator voted to defer for five more years a rule requiring national oil company Pemex to produce, distribute and sell ultra-low-sulfur diesel (ULSD) nationwide.

By a unanimous vote, Mexico’s Energy Regulatory Commission (CRE) decided to postpone the closely watched rule in a meeting that lasted barely a few minutes, with no public discussion and no reason given.

The postponement follows an earlier deferral late last year amid an ongoing legal battle over the matter.

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Under the CRE’s resolution, Pemex can continue marketing ULSD only in Mexico City, Guadalajara, Monterrey – Mexico’s three largest cities – and on the northern border with the United States through the end of 2024 .

In the rest of Mexico, companies may choose which type of diesel they will offer.

The government argues that technical and operational conditions for distributing ULSD nationwide will only exist in late 2024, according to a document sent last week to the regulator by deputy energy minister Miguel Maciel .

Pemex does not produce enough clean diesel to satisfy the demand the new rule would create, which was passed during the administration of former President Enrique Peña Nieto . It was aimed at reducing emissions and replicating regulations in neighboring countries.

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U.S. refiners last year prepared to produce surplus ULSD for export to Mexico, one of the world’s top fuel importers . But the higher demand never occurred as the rule was postponed and later suspended while Pemex and the CRE disputed the issue in cour t.

Pemex was not ready to boost output and start distributing ULSD nationwide by the time the rule was created in 2006, due to storage and production limitations, the company told Mexico’s Energy Ministry, according to Maciel’s letter, signed December 11.

“As it did not have the required infrastructure for producing ULSD, (Pemex) was unable to immediately comply,” Maciel wrote.

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A project to produce ULSD at Pemex’s Cadereyta refinery was suspended, and similar projects only reached 9% completion due to insufficient capital, Pemex said.

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and the Energy Ministry did not immediately respond to requests for comment.

Pemex was meant to switch to ULSD nationwide by the end of 2018 . The CRE approved a first six-month postponement that was never published officially.

A Pemex lawsuit put a hold on the regulation until the court rules.

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The postponed ULSD rule was also intended to help require trucks and buses to include equipment to use clean diesel from 2021.

Originally, the rule was part of the clean fuel strategy designed in 2005 and that will have a cost of MXN $51.6 billion .

With this decision, the government of President Andrés Manuel López Obrador joins the administrations of Vicente Fox , Felipe Calderón , and Enrique Peña Nieto that, in 20 years, would not have fulfilled the commitments made in the Fuel Quality Program.

This strategy was presented in 2005 to the Expenditure Financing Inter-Ministerial Commission in August 2005 and it obtained the authorization 0518TZZ0001. Then, on April 18, 2006, the pre-investment study was registered with the number 0618T4M0003 to develop the research and engineering of the diesel and gasoline phase.

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At that moment, Rule 086 set a calendar that obliged Pemex to produce and distribute ULSD, first in metropolitan areas and then nationwide.

In the case of diesel , the commitment was that by the end of 2008 , Monterrey, Guadalajara, and Mexico City would have this fuel available.

The date for nationwide distribution was September 2009 but none of the commitments was fulfilled.

Since 2008 and 2009, to resolve the supply of clean fuels , different governments have decided to import the product instead

This means that, adding the five years of the current administration, the supply of clean diesel produced in Mexico will be 16 years late and, in the case of nationwide distribution, 17 .

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