‘Facilitating Connections’ in Mexico

FROM THE DECEMBER ISSUE: Mexico's E10 market has been slow to develop, but progress is being made.
By Matt Thompson | November 19, 2019

As the U.S. ethanol industry grapples with declining domestic demand thanks to small refinery waivers issued by the U.S. EPA, there is hope in foreign markets, says Ryan LeGrand, president and CEO of the U.S. Grains Council. “Exports of ethanol is something that everyone can get behind, I believe,” he says. “We have extremely high inventories of ethanol, and the need to move it out of the country is very important, and you don’t see too many detractors out there to ethanol exports.”

Mexico is poised to become a major importer of U.S. ethanol. In fact, LeGrand says, the country has begun to import more ethanol from the U.S. recently, as it has lifted restrictions that barred E10. “It’s promising,” he says. “We know that E10 is going down into the country. From what we’ve heard, there are suppliers from the U.S. that are selling preblended E10 to hundreds of Mexico’s gasoline stations. So that’s kind of the start of it right now.”

Ron Lamberty, senior vice president of the American Coalition for Ethanol, has spent time in Mexico answering retailers’ questions about ethanol. He says more ethanol is being sold in the country, but the most interesting recent development is that Pemex, Mexico’s state-owned petroleum company, requested $50 million for ethanol infrastructure in its 2020 budget. Finishing that infrastructure is a good sign for the country’s ethanol industry, Lamberty says.

A Change in the Landscape
Mexico’s gasoline market was controlled by Pemex until the country underwent energy reform three years ago. Kristy Moore, a technical and regulatory consultant for international market development with both Growth Energy and the USGC, helped with that reform and guided Mexico as it made the switch to cleaner-burning fuels. “We’ve been working with the various departments of the Mexico government that control the fuel specifications and regulatory requirements for motor gasoline to ensure that we can provide them with a fungible fuel from the U.S.,” Moore says.

However, while E10 is allowed in much of Mexico, the blend is still prohibited in the country’s three largest cities: Mexico City, Guadalajara and Monterey. The use of E10 in those cities is delayed, following a study commissioned by the Mexican government from the Mexican Institute for Petroleum to test a fleet of cars and compare evaporative and tailpipe emissions from E10 to a fuel that includes MTBE. “The results were largely the same on those emissions,” LeGrand says. “[The study] proved that the inclusion of 10 percent ethanol would not lead to an increase in emissions and an increase in ozone in Mexico’s three major cities.”

Moore says that following the release of the study in 2018, there is momentum in adopting E10 in the three cities. But, she adds, election rules have prevented the full adoption. In December, Mexico elected a new president and “in the last six months of the administration, or the first six months of the new administration, they aren’t allowed to do anything,” Moore says. So the new administration did not have an opportunity to make the change to allow E10 in those three cities until June of this year. “Everyone understands the benefits, and everyone understands there’s infrastructure and some other buildout that must happen. It’s not going to be overnight,” she says, but she’s confident the blend will eventually find its way into those cities.

Lamberty is also optimistic about the introduction of E10 in Mexico’s larger cities. “I know the Grains Council, and the others that have helped the Grains Council, have done a lot of work to make sure that, scientifically, the country and the states have all of the information they need to make that decision,” he says. But, he adds, even without selling ethanol in those areas, the Mexican market is still a major one. “You’ve still got somewhere between 600 and 800 million gallons of ethanol demand that could be met, especially if Pemex decides to switch from using MTBE as an oxygenate to using ethanol,” he says.

Moore agrees. “That market is about the same size as the state of Texas. Just over 12 billion gallons of gasoline consumption. It’s a really big ethanol market.”

Lamberty and Moore say the country imports a major portion of its gasoline, and those imports include MTBE. “In general, MTBE costs more than gas and ethanol costs less than gas,” Lamberty says. “MTBE is not something that they’re making in great quantities in Mexico. It’s part of what they import.”

Moore says, “MTBE sells at a premium price to gasoline, so the Mexico fuel market doesn’t get the full benefit of adding an oxygenate, or the octane from the oxygenate, because it’s not cost competitive. They blend at the very minimum amount, which does a very minimal job of reducing tailpipe emissions.” Moore adds that MTBE also isn’t a volume extender the way ethanol is. “Of course, you only get a fraction of the octane that we’ve come to know as a critical part of ethanol’s role.”

Looking Forward
But change can be hard, Lamberty says. “[MTBE] has been there a long time. And just like anything else, even if it’s bad, if it’s been there a long time, there’s going to be resistance to changing.” He adds that the approach he and others from the U.S. take in helping promote ethanol is just that: the role of a helper. “Our job is to point out the advantages, to provide information they need, and then if there’s anything we can do to help them get it through their system, then we do that,” he says.

Moore agrees. “When you build markets internationally, you don’t want to go into these countries saying, ‘You must do what the U.S. does,’” she says. “That’s just not practical. Ethanol has a role to play in each fuel market, but each fuel market is unique. We want them to learn from our successes and mistakes, and what works in the U.S. may or may not work for them, but we’ve given them the right tools to adapt on their own.”

Since Pemex doesn’t blend ethanol, the ethanol coming into Mexico has had to come from other suppliers, so education for Mexico’s fuel retailers is crucial to developing that market. “We feel our job is to facilitate connections, connecting people who we know will supply E10 to Mexico,” she says. Moore also says Pemex likely will have to blend ethanol in order to remain competitive, since it’s cheaper than MTBE. “That is a real plausible outcome of what happens here,” she says.

“We would love it if Pemex decided to use ethanol instead of MTBE, and some of the people that came to our tour in Iowa in July were customers of Pemex,” Lamberty says. “They’re big convenience store users, but they bought their gas from Pemex. What typically happens is somebody like that will see that it’s a good deal, and ask Pemex if they could get ethanol instead of gasoline. It’s far more effective to have a customer in Mexico ask Pemex or their state government or their federal government for change, than it would be for any of us Americans to go down there and try to tell them how to run their fuel business.”

Those Iowa tours, which were hosted by the USGC, along with ACE and the Iowa Renewable Fuels Association, brought a delegation of Mexican retailers and offered tours of Iowa’s ethanol industry, including ethanol plants, fuel terminals and farms. The tours, Lamberty says, went well. “We did have several of those people who were on that tour follow up afterwards by having stations checked out to make sure they were going to be OK to start selling ethanol and I believe, by now, there’s probably a couple of them that have it in there,” he says.

Along with retailer education, LeGrand says a major factor limiting the country’s imports is infrastructure. “Before we really see major shipments of just pure ethanol for fuel going down, we have to have some infrastructure buildout, and that’s happening right now,” he says. “Some of the private terminals that are being constructed right now, that were never allowed before the energy market liberalization in Mexico, are nearing completion, or some of them are just starting to operate.”

Lamberty agrees that infrastructure is the next step. “The infrastructure issue with Mexico in general is transportation of the fuel from where it’s made to where it’s going to be used,” he says. The issues with fuel tanks and equipment have largely been addressed. “We’re talking about E10 here, so there really isn’t any kind of fuel equipment built and sold anywhere in the world that isn’t compatible with E10,” Lamberty says.

Domestic Production
While the focus has been on ethanol imports from the U.S., Moore says there is an appetite in Mexico for eventual domestic ethanol production. She says the country has a strong agricultural sector, and in addition to corn, its farmers also produce sugarcane. “There’s lots of potential,” she says.

Ethanol in Mexico also enjoys support from the country’s department of agriculture, Moore says. “They are probably, besides the department of energy, our most supportive department in the entire Mexican government,” she says.

Lamberty also says Mexico sees much of the same anti-ethanol rhetoric the U.S. has become accustomed to. “It’s sort of … a flash from the past, because it goes back to all the things we hear,” he says. “Vehicles have driven on E10 now for 40 years and there’s not additional issues, but the same stuff gets translated and trotted out in Mexico.”

While Mexico holds promise as a burgeoning ethanol market, LeGrand says the USGC has six other areas it’s focusing on as well: Brazil, Canada, India, China, Japan and Indonesia. LeGrand says the USGC has a goal to export 4 billion gallons of ethanol by 2022. Last year, U.S. exports reached 1.6 billion gallons. “A couple of those really big, billion-gallon or more markets are going to be great and really help to meet that goal, but also we need some of these smaller ones to come along, too,” LeGrand says, adding that agreements with smaller markets like Vietnam, Columbia, the Philippines and Korea will be instrumental in providing relief to the oversupplied U.S. market.

He also says ethanol is the council’s biggest focus right now. “Ethanol’s really at the top of our radar right now and it’s the fastest-growing export, and we want to make sure that continues,” he says.

Author: Matt Thompson
Associate Editor, Ethanol Producer Magazine