On January 18th, at least 96 people died in Mexico as a result of a powerful explosion at a gasoline pipeline that had been punctured by gasoline thieves. Relatives of the victims said that fuel shortages due to a government crackdown on fuel theft cause people to risk their lives filling plastic containers from the leak.
Elected in December 2018, Mexican President Andres Manuel López Obrador closed six major pipelines where criminal gangs and other thieves have siphoned off stolen fuel worth billions of dollars. Instead, distribution was rerouted through trucks, which has provoked long lines at gas stations while threatening to crimp the economy and damage his popularity if shortages persist.
The problem with theft in Mexico is a long-standing one. According to energy ministry data, Mexico’s fuel market is the world’s sixth biggest, with a daily demand of 1.18 million barrels of gasoline and diesel. Due to lack of attention on the government’s side, organized groups opened taps along the pipeline of Mexico’s national oil company – Pemex. Internal complicity at Pemex refineries and terminals have also opened the door for theft of entire trucks loaded with fuel.
Thieves tap into pipelines and are currently siphoning off the equivalent of around one-fifth of total national gasoline consumption, about 150,000 barrels per day (bpd). Pemex documented more than 12,500 illegal taps to its fuel pipeline network during the first 10 months of 2018.
Theft has ramped up in recent years as a result of a combination of the drug war and former President Enrique Pena Nieto liberalization of the fuel industry in the country for foreign investment.
As a result, retail prices went up, which paved the way for cartels to undercut prices through black-market sales of gasoline. Most of the stolen fuel is mostly sold back to gas stations and sold legally back to consumers.
Lopez Obrador has said upwards of 80 percent of the theft is organized by Pemex employees, though he has not provided evidence.
The fuel shortage is also reinforced by the fact that Pemex’s six domestic oil refineries work below their capacity, due to a mix of underinvestment, deferred maintenance and frequent accidents, including deadly explosions that have provoked costly stoppages.
Central and western states including Queretaro, Guanajuato, Hidalgo, Michoacan and Jalisco are most afflicted by the pipeline theft
Las year, the refineries operated at about a 1/3 of their 1.63-million-barrel-per day crude processing capacity. For comparison in 2013 they produced 1.4 million barrels per day.
Mexico in recent years has imported most of its required fuel, instead of producing it internally. In 2018, imported gasoline, distillates and liquefied petroleum gas grew to about two-thirds of total demand.
Mexico is the biggest buyer of US gasoline and diesel. In October 2018, the US exported 621,000 bpd of gasoline to Mexico, accounting for roughly 60 percent of the 1.03 million bpd exported that month, according to the U.S. Energy Information Administration (EIA).
To normalize the situation, major fuel pipelines began being closed on December 27th, 2018. To replace the shortage, 5,000 trucks began distributing fuel supplies to over 11,000 gas stations across Mexico. The cost of transporting gasoline and diesel by tanker trucks is nearly 14 times more expensive than via pipelines, according to a study by Mexico’s Federal Commission for Economic Competition.
There have been protests against the fuel shortages, while Pemex and Lopez Obrador are attempting to assure citizens that 4,000 soldiers are supervising the refineries and other fuel installations. They have pleaded the population to be patient while the distribution system achieves normality.
The issue is that Lopez Obrador’s team has yet to explain how it will finance the much more expensive distribution costs it is now incurring in the long term.