Monopolies, Reform Policies, MTBE and U.S. Ethanol Exports

Mexico ethanol
mexico ethanol 2
This week, USGC and its partners, RFA, Growth and USDA FAS are conducting a mission to Mexico to explore the potential ethanol market in that country.

By: Ashley Kongs, U.S. Grains Council Manager of Ethanol Export Programs

This week, the U.S. Grains Council (USGC) and its partners, the Renewable Fuels Association (RFA), Growth Energy and U.S. Department of Agriculture's (USDA's) Foreign Agriculture Service (FAS), are conducting a mission to Mexico to explore the potential ethanol market in that country. This comes on the heels of Pemex’s announcement earlier this year that it would invest 880 million pesos ($58 million USD) in infrastructure upgrades to handle and blend ethanol into gasoline in Mexico. Pemex holds a monopoly on Mexico’s gasoline market.

Mexico has been considering domestically-produced ethanol from sugarcane and sorghum since 2007 as a potential oxygenate to blend with gasoline. However, in the past, Pemex could not source ethanol at a price competitive with methyl tertiary butyl ether (MTBE). Currently, Mexico is one of the world’s largest markets for MTBE, which is now banned in many countries due to environmental concerns.

While these impacts were previously less critical, reforms in Mexico’s energy policy are changing the picture. The reform will eliminate Pemex’s monopoly starting in 2017. In addition, the reform also requires that in 2018, gasoline and diesel prices will no longer by set by the government. This mean in two to three years’ time, Pemex will need to be competitive in the international marketplace. In March, Pemex announced its plan to introduce its first-ever blend of gasoline mixed with ethanol.

So far, Pemex has awarded six contracts to local ethanol plants, including one the USGC mission visited this week. Under Mexican law, these plants are prohibited from the domestic production of corn-based ethanol, but it is clear that domestic sugarcane production can only meet a portion of the ethanol fuel supply potential in Mexico.

This could create a potential for U.S. exports of ethanol to the market, which under the North American Free Trade Agreement (NAFTA) should have no tariffs. However, U.S. ethanol exports to Mexico will only occur if they are economically competitive and will require an incentive to the ethanol blender and/or gasoline distributor to change the existing fuel distribution system in favor of using ethanol.

The USGC mission members included Greg Krissek of Kansas Corn Commission, Kelly Davis of RFA, Steve Bleyl of Green Plains Renewable Energy, Inc., Brian Healy of USDA-FAS, Julio Hernandez of USGC, Javier Chavez of USGC and Ashley Kongs of USGC. In addition to the Mexican ethanol plants, the team also visited biofuels and energy policy experts, energy and petroleum industries, and related public and private institutes.

Following this mission, the Council, its partners and industry representatives will travel to Japan to lay the foundation for future programming in that country. An update on this mission will be included in a future Global Update.

Click here to view photos from their travel to Mexico.