Pemex awards 10-year contracts for domestic ethanol in Mexico

By Susanne Retka Schill | April 08, 2015

Fuel ethanol got a boost in Mexico recently when the state-owned oil company, Pemex, awarded four 10-year purchase contracts for anhydrous ethanol. Pemex announced contracts for 123 million liters (32 million gallons) of domestically produced anhydrous ethanol to be blended at a 5.8 percent ratio in Pemex’s trademarked Magna gasoline.

Pemex said it will invest 880 million pesos ($58 million) in infrastructure upgrades to handle and blend ethanol, along with refinery adjustments at Ciudad Madero and Minatitlan. The company added ethanol producers are expected to invest at least $132 million to build and adapt their biorefineries. 

The contracts will support regional producers of sugarcane in Veracruz and sorghum in Tamaulipas, according to Pemex, and be valued between $524 million and $750 million. Four contracts were awarded to Mexican companies, but tenders for two others were rejected and will be rebid. Two of the tenders were awarded to tequila distilleries, Alcoholera de Zapopan and Destiladora del Papaloapan. One was to an engineering firm, Soluciones en Ingenieria Naval, Marina y Terrestre, and the fourth to biofuels developer, Bionergéticos Mexicanos SAPI (Biomex).

Biofuels have been on the discussion table in Mexico since 2007, when a law was passed for the promotion and development of bioenergy. In 2010, the government established a two-year project for bioenergy and in 2012, Biomex announced plans to invest $135 million in a sorghum-based ethanol plant in the state of Tamaulipas.

The last USDA Foreign Agriculture Service report on Mexican biofuels, dated July 2012, reported Pemex had canceled ethanol bids more than once when bids came in higher than it was willing to pay. The FAS Global Agricultural Information Network report indicated the 2012 bid offers rejected by Pemex came in at $1.03 and $1.05 per liter, when the Mexican oil company had referenced target prices of 66 and 68 cents per liter. “Although the legal framework that will regulate Mexico’s biofuel production and commercialization is in place, it is undeniable that ethanol and biodiesel are significantly more expensive than the products they intend to substitute, limiting current biofuel production to research projects,” the GAIN report concluded. In 2012, Mexico had established goals of 50-100 MMly for 2012, 100-200 MMly in 2015, on up to 115-230 MMly by 2016.

Ed Hubbard, who represents the Renewable Fuels Association on the ethanol export partnership led by the U.S. Grains Council, told Ethanol Producer Magazine that Mexico is considered a potentially strong market for ethanol, as it is one of the world’s largest markets for the oxygenate MTBE, now banned in many countries. “Mexico has 18 sugarcane mills with ethanol distillation capacities, but it is unclear whether that is destined for fuel or industrial use,” he said, adding that Pemex’s 10-year purchase contracts are likely to enable upgrades at the tequila distilleries and facilitate the building of Biomex’s sorghum-based ethanol plant.

In its announcement, Pemex said it, “recognizes the need to strengthen the country's energy security through the use of social, economic and environmentally viable bioenergy. In this way, it is put on a par with international oil companies incorporating the use of bioenergetics in their gasoline.” It also said the project will bring greenhouse gas savings of at least 35 percent compared to the fossil fuel displaced.

The Reuters account of Pemex’s ethanol contracts hinted at another motivation for the company, reporting that energy reform finalized last year “gradually ends the retail monopoly enjoyed by Pemex's nearly 11,000 franchise gas stations scattered across the country. Beginning in 2017, companies that operate startup non-Pemex stations will be able to import outside gasoline, and then in 2018, gasoline and diesel prices will no longer be set by the government.”