Understanding Energy Reform and Fuel Prices in Mexico

It’s one of the biggest transportation stories of 2017. Energy reform in Mexico is ending decades of government control and subsidies as market liberalization moves in to take its place. This is such a major move, the executive director of the International Energy Agency (IEA) says it goes beyond reform, calling it “a revolution on an unprecedented scale.”

While the Mexican fuel market has undergone many changes in the past few years, 2017 will mark the biggest developments yet. Instead of state-owned Pemex setting a fixed, national price for diesel and gasoline, fuel prices now vary from region to region. Since the Pemex monopoly is over, international oil companies can enter the mix, fulfilling contracts for downstream and upstream endeavors including refining, the operation of fuel stations, extraction of oil from shale deposits, and expansion of drilling in the Gulf of Mexico.

Under Mexico’s former system, fuel prices were updated about once per month. Now, prices will soon change daily, and the cost of fuel will be influenced by the global market as it moves to open market pricing.

Mexico is hoping to revive its struggling energy sector and subsequently improve the nation’s economy. Oil production has been declining in Mexico since 2004 while dependency on imported natural gas and the nation’s total energy demand has been growing rapidly.

In addition, the reforms aim to increase Mexico’s energy security while addressing climate change and boosting clean energy efforts.

A free market for the energy sector in Mexico may be a positive change, but it also brings about challenges in transportation. Any company that ships goods in Mexico needs to have a solid understanding of the situation in order to operate efficiently and manage transportation costs.

Before 2017, a carrier moving a shipper’s goods through Mexico would encounter the same diesel fuel prices at every gas station, anywhere in the country. Today, there are 90 distinct regions in Mexico, which already have significant price variations, and those regions are gradually moving toward a full free market system throughout the year.

Since announcing the plan for deregulation and liberalization in December 2016, Mexico’s fuel prices in 2017 have been anywhere from 14-20% higher than they were at the end of last year. More uncertainty and volatility are expected as Mexico works to implement these historic reforms quite quickly.

Get Expert Insights and Make Informed Decisions

Energy reform in Mexico is raising many questions among shippers and carriers alike. It’s a complicated issue that requires in-depth analysis and industry knowledge to fully comprehend and respond accordingly.

At Breakthrough, we have the in-house experts and resources to provide our clients with the information they need to plan for what’s ahead. We’re paying particularly close attention to energy reform and fuel prices in Mexico, which means our clients are among the first to know what’s happening next.

Our newest publication, Breakthrough Global Advisor: Mexico, is helping companies navigate the many changes. Breakthrough’s clients receive exclusive insights including key metrics, and updates on the timeline of the rollout, as well as a comprehensive outlook and forecast of the Mexican fuel market. It’s a valuable resource we make available to clients using a Breakthrough Fuel Recovery program, which removes distortion and brings transparency to transportation. Our goal is ensuring everyone pays a fair price for the fuel needed to ship goods across North America and beyond.

Interested in learning more about how we can help? Contact us today. Or, subscribe to a limited number of issues of the Breakthrough Advisor Brief, which is an abridged version of our complete publication. Find out more about energy reform in Mexico when you visit the Knowledge Center and download the latest Advisor Pulse on this topic.