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Ohio Utica Shale

Mexican oil monopoly may make new access difficult

By Bob Downing Published: July 9, 2014

From GlobalData today:

FOR IMMEDIATE RELEASE

  • Existing Pemex monopoly likely to deter new investment in Mexico’s fully deregulated downstream market by 2020
  • ‘More clarity is needed regarding the financial framework under which companies will operate in Mexico,’ says analyst

Pemex Monopoly Could Deter New Competitors from Entering Mexico’s Downstream Oil Sector, says GlobalData Analyst

LONDON, UK (GlobalData), 9 July 2014 - Despite the imminent phased introduction to a fully deregulated market, new companies wishing to enter Mexico’s downstream oil space will have a difficult time overcoming the existing monopoly held by state-owned Pemex, according to an analyst with research and consulting firm GlobalData.

Carmine Rositano, GlobalData’s Managing Analyst covering Downstream Oil & Gas, states that although a free market will replace the present regulated system by 2020, there are a number of significant barriers facing companies that wish to compete for a share of Mexico’s downstream industry.

The analyst says: “New entrants will initially find themselves dependent upon Pemex for the necessary infrastructure, such as terminals, pipelines, storage facilities and tank truck delivery. Building, expanding and improving infrastructure is costly, and it is extremely time-consuming to obtain all the necessary approvals from local, state and federal Mexican agencies.

“Additionally, prime service station locations are already under Pemex ownership and new players would therefore be forced to compete for less desirable locations.”

GlobalData’s research has shown a stagnated demand for oil in Mexico between 2011 and 2013, when the country required 2.1 million barrels per day, a figure which is set to remain relatively constant over the next few years. This lack of growth, combined with issues of product pricing and taxation, makes private investment in Mexico’s downstream industry a tough sell.

Rositano explains: “The forecast for minimal, if any, growth in Mexico’s oil demand entirely overshadows downstream investment opportunities for private capital. No new refineries or upgrade capacity will be required given the cheaper alternative of supplying the market with imports from the neighboring US.

“More clarity is needed regarding the financial framework, under which companies will operate in Mexico, that influences capital investment decisions, profitability and free cash flows, and the repatriation of funds to a parent company.”

Rositano adds that an explicit framework addressing the uncertainties of moving from a tightly-regulated to an open free market is necessary for minimizing financial and operational risks and allowing companies to develop strategies for participation in Mexico’s evolving downstream sector.

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