International and domestic energy brands battle for downstream market share in Mexico

With the majority of investments coming into the sector through the energy reform, and with the results of this expected to manifest in the medium term, one segment of the market is already seeing an unprecedented level of change. Liberalisation in the downstream petroleum distribution market, part of the ongoing reforms to the energy sector launched in December 2013, has attracted international and domestic operators, and is changing the face of Mexico’s petroleum products retail network. Out of a total of approximately 11,700 petrol stations across the country as of December 2017, more than 18% had already changed hands, from state oil firm Petróleos Mexicanos (Pemex) to one of the new retail operators. The Energy Regulatory Commission (Comisión Reguladora de Energía, CRE) has estimated that a total of $12bn in private investment will be channelled into refurbishing existing petrol stations and building new ones across Mexico.

Regulatory Drive

Although private firms could participate in the downstream segment before 2013, the only way to do so was through the Pemex franchise system, which allowed companies to sell petroleum products under the state-owned company’s brand. The 2014 Hydrocarbons Law has opened the door for private investors to take part in activities across the midstream and downstream segments. Implementation has followed a specific schedule. The sale of fuel has been open to private firms since 2016, and in 2017 operators other than Pemex were permitted to import petrol and diesel. The liberalisation of fuel prices concluded in early 2018, meaning that the price of petrol in Mexico would now reflect global prices.

Although regulations state that Pemex must allow open access to its transport infrastructure to any private company, it still imports the majority of the petrol currently sold via retail channels. The reform has, however, opened the way for new infrastructure providers in the midstream segment to start supplying the retail side. “There is an opportunity to set up infrastructure so all these brands can bring petrol from their refineries to Mexican ports, and from there move closer to points of consumption,” Tania Ortiz, the executive vice-president of business development at local energy infrastructure developer IE nova, told OBG.

The new rules have already attracted over 30 new brands to the distribution market, with domestic and international players aiming to claim a part of the valuable fuel market. Annual retail sales of automotive fuels averaged MXN377m ($20.4m) per annum over the 2011-15 period, according to figures by Pemex.

New Players

To some domestic firms, the opening is a chance to take a leading role. Oxxo Gas, owned by global beverage and retail giant Femsa, is now operating pump stations under its own brand after servicing the fuel distribution market for over two decades through a Pemex franchise. As of early 2018 there were a total of 452 stations under the Oxxo Gas brand. In August 2017 US-based Chevron reached a deal with global natural resource trader Glencore to import fuel to Mexico through its terminal in Tabasco. By the end of 2017 Chevron had six stations operating under its name. Glencore also signed an agreement to supply the fuel marketing franchise Corporación G500, which held a 12% share of the fuel distribution market in mid-2017.

Spanish firm Repsol has announced a plan to build 200 fuel stations across Mexico in 2018, vowing to invest $430m in its distribution network. Meanwhile, Royal Dutch Shell opened its first fuel station in Mexico in September 2017 and has estimated it will invest up to $1bn in new sales points over the coming decade. ExxonMobil’s 10-year plan for Mexico is set to be worth $300m, after the company opened its first station in 2017, the same year that saw the arrival of BP. The growth opportunity is clear. In 2017 Mexico had one petrol station per 10,514 inhabitants, compared to one facility per 2677 people in the US and one per 5158 inhabitants in Brazil. With so much ground to cover, the battle to expand distribution will remain heated.