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Downstream Supply Interruptions Hit Numerous States as Mexico Fights Fuel Theft

Mexico’s president Andrés Manuel López Obrador told reporters on Monday that supply interruptions and long lines at filling stations in multiple states over the last few days were caused by enhanced security measures to prevent rampant fuel theft from the sprawling pipeline network of national oil company Petróleos Mexicanos (Pemex).

Fighting the scourge of “huachicoleo,” a colloquial term for fuel theft, has become a pillar of López Obrador’s plans to change around the fortunes at Pemex, a company that has seen production plummet in the last decade and a half. Pemex crude oil production averaged 1.72 million b/d in November, down from 1.76 million b/d in October and 1.87 million b/d in November 2017. Crude output was 3.38 million b/d in 2004 when the decline began.

Fuel theft caused a loss of about 60 billion pesos ($3.05 billion) for Pemex in 2017, López Obrador said in late December, a figure he said would be surpassed in 2018. To put this into context, the fuel theft cost is equivalent to about 30% of the 2019 capital expenditure (capex) budget for upstream subsidiary Pemex Exploración y Producción (PEP).

“We have sufficient gasoline,” López Obrador said on Monday. “What we are taking care of is the distribution system.” He added, “We are going to normalize supply, and at the same time we are going to ensure that fuels are not stolen.”

The supply interruptions follow the launch of a nationwide program to combat the lucrative criminal enterprise of huachicoleo. With the military now monitoring operations at critical points throughout Pemex’s refining, storage and distribution network, the number of illegal taps per day has dropped from more than 1,000 to between 70 and 100, López Obrador said.

As a consequence, however, Pemex has had to temporarily shut down certain pipelines and instead supply fuel via truck and rail. Pemex said over the weekend that the most acutely affected states were Hidalgo, Estado de México (which surrounds Mexico City), Jalisco, Michoacán, Guanajuato and Querétaro.

Pemex said Sunday, “The country is not facing a [fuel] shortage,” and called on motorists to “avoid panic purchases” of gasoline. “Our storage and dispatch terminals have sufficient inventories to satisfy the demand of the population,” Pemex said one day earlier, noting it is “making its maximum effort to increase by up to 20% its distribution in the affected states, entirely through trucks and trains, in order to supply our distributors and consumers.”

It remained unclear on Monday whether normal operation of the pipeline system and a reduction in fuel theft were mutually exclusive goals.

“We are going to modify, if necessary, the whole system of distribution,” López Obrador said.

Guanajuato governor Diego Sinhue Rodríguez Vallejo tweeted on Sunday that he had received confirmation from Pemex CEO Octavio Romero Oropeza that supply to filling stations in the state would be fully restored within the day after the reopening of the Salamanca-León pipeline.

López Obrador has pledged an approximately 40% increase in crude oil output by 2024, and a 50% increase in natural gas production in the same period, driven by associated gas.

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