Mexico City Smog Could Get Worse as Fuel Crisis Continues

(Bloomberg) -- Mexico City’s notoriously high air pollution may get worse as Pemex’s refineries are under pressure to send lower quality diesel to the country’s central region, which has been plagued by major fuel shortages since Saturday.

Regulations that would have forced Mexico to sell more environmentally-friendly ultra-low sulfur diesel, or ULSD, at the start of January have been pushed back because refineries run by state-owned Petroleos Mexicanos can’t meet the standards. Pemex’s infrastructure deficiencies have been compounded by the government’s fuel theft plan, which has seen it shut pipelines and increase surveillance of refineries and terminals, leading to fuel distribution delays.

The central Bajio region will have six months before it must convert to ULSD, unlike the rest of the country which has had to do so since the start of the year, the Energy Regulatory Commission, or CRE, said in a Dec. 28 statement on its website. Pemex’s Salamanca and Tula refineries that serve the central region of Mexico “do not have the capacity to produce ULSD, nor do the conditions of transport and storage infrastructure exist to guarantee the supply of imported ULSD,” it said.

Pemex issued a force majeure on the fuel at the end of last year, saying that it could not supply ULSD to all of the country in the first days of January because it needed time to prepare its storage and transport infrastructure, according to an internal company document seen by Bloomberg. Pemex wasn’t able to respond immediately to a request for comment.

Higher international prices for ULSD also make it less economic to circulate the cleaner diesel. While previously Mexico sought to smooth out international price volatility by applying a so-called “fiscal stimulus” to the special tax on production and services, or IEPS, for diesel and gasoline, the Finance Ministry has kept the stimulus at zero for a second week, it reported in the Official Gazette on Friday.

There are few options for private gasoline retailers including BP Plc and Repsol SA, which are scrambling for alternatives to Pemex to supply their service stations. In addition to truck shortages, the ports are swarming with more than 30 fuel tankers waiting to unload.

To contact the reporter on this story: Amy Stillman in Mexico City at astillman7@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers

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