Petro-Plunder Rages in Mexico, Costs Surge

Just as the gasoline market is opened to competition, Mexico becomes one of the worst places in the world for fuel theft. 

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Mexico’s black market for black gold keeps getting bigger. In 2017, 10,363 illegal pipeline taps were found, 50% more than the 6,873 found in 2016, according to data from Petróleos Mexicanos (Pemex). In other words, an average of 28 new pipeline taps were found each and every day last year. Most of them are into gasoline pipelines. And those are the taps that were found. Many more are presumed to be in operation but are yet to be detected.

The reach of the fuel thieves — often referred to as “huachicoleros” — has grown exponentially, according to Pemex. Five years ago just 1,635 illegal taps were found and they were almost exclusively located across four strategically located states (Guanajuato, Puebla, Veracruz and Jalisco). Since then the huachicoleros have gone national and now have a presence across many of the nation’s 33 states.

Mexico is one of the worst places in the world for fuel theft. Those doing the plundering include armies of amateur opportunists who live close to the major pipelines that crisscross the country as well as some of Mexico’s most ruthless and organized drug gangs, who receive logistic help and support from local politicians and Pemex contractors

Often Pemex employees are hired to do the more specialized — and dangerous — work. First they dig and uncover a section of a pipeline, then they drill into it and install a tap. When that is done, they camouflage the operation and then start filling containers which can be distributed by a network of roadside peddlers. In one of the more audacious recent incidents, in Queretero, one of Mexico’s biggest and fastest growing industrial centers, thieves directly tapped pipelines on a Pemex gas station.

The massive increase in fuel theft since the Mexican government liberalized the price of gasoline in January 2017 has had a big impact not only on prices at the pump but also on spending undertaken by both the government and Pemex to try to halt the crime spree. Since 2008, Pemex has spent 28.3 billion pesos ($1.5 billion) on 15 programs aimed at tackling fuel theft, but to little avail. Despite the firm’s increasing use of costly pipeline tracking systems, radar, drones, planes, boats and other tactical vehicles, the number of illegal pipeline taps has risen by over 20-fold in the last decade.

This trend is generating notable distortions in the market price, says José Luis de la Cruz, director of the Institute for Industrial Development and Economic Growth (IDIC). The logistics costs of fuel production and distribution spike as a result of spiralling security costs — costs that first fall on Pemex, for now the only producer and supplier of gasoline in the country (despite the entry of new players into the sector). Those additional costs are then passed on to the owners of the gas stations and finally on to consumers.

In 2017 alone prices surged on average by 17%, largely the result of the government’s decision, on the first day of that year, to withdraw public subsidies that had helped keep gasoline prices artificially low in Mexico. The result was an instantaneous 20% surge in prices, which triggered nationwide riots and blockades of fuel depots. It also gave a almighty boost to Mexico’s already buoyant black market for gasoline.

The more the black market grows, the more expensive it becomes for Pemex and the government to counter it, which in turn fuels higher prices at the pump, providing a further fillip to black market vendors.

The petro-plunder is also discouraging private investment, especially in Mexico’s refinery sector, a long-neglected industry which is sorely in need of new funds. At the end of 2017, Pemex’s refineries were operating at 51% of their capacity,” says Alejandro Limón Portillo, a specialist in energy issues and public finance at Mexico’s Center for Economic and Budget Research. “The refining sector is sending a clear message that it needs more investment, but nobody wants to listen because of the ‘huachicol’ threat”.

As long as the sector continues to perform at such chronic levels of under-capacity, Pemex’s dependence on imported gasoline will continue to grow. Last year 71.6% of the gasoline used by Mexicans was imported. On average, 570,600 barrels per day were bought from abroad in 2017, 60% more than in 2013. Much of it came from the US.

It’s a trend that shows little sign of changing. The only company that has taken the plunge so far in Mexico’s refining sector is the Japanese conglomerate Mitsui, which in January signed a partnership agreement with Pemex to develop and operate a coking plant at Pemex’s second largest refinery, in Tula. Other than that, no other foreign investment has been made in the sector.

Mexico’s rampant fuel theft also creates unfair competition for those who are investing big bucks in the gas station sector, including many of the world’s oil majors, says José de la Cruz. At the end of the day, the stolen fuel returns to the Mexican market, but at a sharply discounted price (usually 50-70% of the price at a gas station). The huachicoleros do not even bother to hide its origin.

Gas theft represents one of the most lucrative sources of funds for organized crime in Mexico, a country that has spectacularly failed to combat the rise of organized crime in the last 30 years. If Mexico’s black market continues to grow, it’s only a matter of time before new entrants into Mexico’s gas station market begin getting cold feet. By Don Quijones.

If this merger goes through, three companies to control 60% of the world’s seed and pesticide markets. Read…  The Oligopolization of Food Supply Hits a Snag 
 

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  24 comments for “Petro-Plunder Rages in Mexico, Costs Surge

  1. John
    Mar 12, 2018 at 9:17 am

    So, what’s being done to curtail the theft? I haven’t heard of any meaningful measures. One would think that those caught would be highly ostracized, maybe even shot, in the most publicized manner possible.
    Or are those doing the theft, so intertwined with those enforcing the laws that they are immune to any retribution? Mexico is pretty corrupt, but has a ways to go to match DC.

    • Nick Kelly
      Mar 13, 2018 at 4:55 pm

      Ostracized? I thought that meant merely social shunning.

      But ‘Ostracized with extreme prejudice.’ could be serious.

  2. Javert Chip
    Mar 12, 2018 at 10:21 am

    USA definitely has its issues: FBI, FISA court, $145M Russian contribution to Clinton foundation before uranium sale, enforcement of banking regulations, etc. However, we don’t appear to have drug gangs stealing gasoline.

    Or gangs shooting elected politicians.

    Or gangs shooting media reporters.

    Mexico’s homicide rate is 4 times that of USA (https://en.wikipedia.org/wiki/List_of_countries_by_intentional_homicide_rate)

    80,000 killed since 2006 by Mexican organized crime

    And you’re really sure DC is worse?

    • 2banana
      Mar 12, 2018 at 12:07 pm

      Your stats and facts can’t be true.

      Mexico has very tough gun laws.

      So tough that is nearly impossible for the average Mexican to even own a legal gun.

      There is ONE legal gun store in the ENTIRE country.

      • Nick Kelly
        Mar 13, 2018 at 5:11 pm

        There are probably also very tough laws against gas theft.
        You are talking about a place where the police often drive stolen cars.

    • KFritz
      Mar 13, 2018 at 2:33 am

      Re: Gasoline theft

      https://en.wikipedia.org/wiki/Michael_Franzese

      See the section, “Gasoline bootlegging.”

      It was big business here, once upon a time.

      It’s true that Mexico’s troubles are, at least in part, of its own making. But the insatiable US demand for dope, and the foolishness of Mexico’s leaders in agreeing to NAFTA are major contributors to the problem. Plus the voluminous flow of firearms from the US to Mexico’s huge illegal market (see below comment).

  3. Foster
    Mar 12, 2018 at 10:22 am

    What is the USA comparison? I have never heard of petro-plunder.

    • Mar 12, 2018 at 12:01 pm

      Petro-Plunder is a term WOLF STREET coined a few months months ago. So you heard it here first:

      https://wolfstreet.com/2017/10/19/petro-plunder-worsens-in-mexico/

      We here at WOLF STREET are infamous for coining expressions, including “QE Unwind” in July 2017, before it even started. “QE Unwind” has taken off late last year in the MSM.

      Here’s one of our early mentions:
      https://wolfstreet.com/2017/07/06/stock-and-bond-markets-blow-off-fed-fed-gets-frustrated/

      • Foster
        Mar 12, 2018 at 5:40 pm

        Thanks for the welcome and, yes, I had to admit I was searching around for a definition of “QE unwind” as I was reading yesterday.

        Anyway, is there much petro-plunder in the US? I have heard of eletro-plunder, cable-tv-plunder and the like. I am sensing a possible unexploited market niche.

      • philbq
        Mar 13, 2018 at 6:44 am

        You need to “TM” these catchy expressions!

  4. Mar 12, 2018 at 11:09 am

    This is all according to Pemex, who doesn’t want the competition?

  5. Shawn
    Mar 12, 2018 at 11:14 am

    How much gasoline is actually being stolen? I can’t find figures anywhere–although maybe I am overlooking it. I see figures on total number of taps, and how much pemex spends to fix pipelines, but no estimates of how much gasoline goes missing. It’s an easy calculation, so even Pemex can figure it out: imports + production – consumption.

  6. JB
    Mar 12, 2018 at 12:07 pm

    Maybe we should put that wall on the fastrack

  7. Alex
    Mar 12, 2018 at 12:18 pm

    No way to detect pipe breach? Will all modern embeddable electronics and mini monitors?

    • Petedivine
      Mar 12, 2018 at 12:49 pm

      If the pipeline were above ground they could use drones to monitor the integrity of the pipeline.

  8. Filippo
    Mar 12, 2018 at 12:26 pm

    How do we know gasoline pipelines aren’t being tapped somewhere in the in the U.S. as in Mexico?

  9. Petedivine
    Mar 12, 2018 at 1:01 pm

    I think there are a couple of things going on here. Although the government doesn’t sanction oil theft it also realizes that if cheaper gasoline doesn’t make it into the economy then there would be wide spread repercussions from those priced out of the market. I assume they are afraid of more violence directed at the politicians. I also believe Pemex has already tapped their easy oil fields, now all they have left are fields that require a level of technical expertise or capital investment that they don’t have or don’t want to pay for. If the trend is a sign of the future then conditions in Mexico are going to worsen. At some point these issues will spill over into the U.S. Mexico is the U.S.’s third largest trading partner. They are also our largest food trading partner. It takes a lot of gasoline and diesel to run big agriculture and ship foodstuffs throughout the U.S.

  10. Kiers
    Mar 12, 2018 at 4:21 pm

    …….aaand here comes the headline: “Americano 20yr old ivy league dropout solves petro-plunder by attaching a distributed ledger to every liter in the pipe” Ay dios mio! Hooray!

    • Filippo
      Mar 12, 2018 at 8:06 pm

      Drink much??

      • kiers
        Mar 12, 2018 at 9:10 pm

        ….not on Sundays. why?

  11. Gandalf
    Mar 12, 2018 at 7:35 pm

    Ukraine, if you recall, was also accused by Russia of siphoning off natural gas for its own use from the pipelines that traveled through Ukraine on their way to Europe. Ukraine lost a court case over this, but so far has not paid back the Russians. It would appear also that the natural gas plundering has not stopped. Gazprom has been busy building new pipelines to bypass Ukraine, and announced they would stop shipping gas through Ukraine after this year.

  12. mean chicken
    Mar 12, 2018 at 10:33 pm

    Who pays the carbon tax on the stolen fuel?

    • Tom T
      Mar 13, 2018 at 12:38 am

      Why a USAID development grant of course,

  13. philbq
    Mar 13, 2018 at 6:50 am

    Mexico is hopelessly corrupt. The main problem is the police are bought off. How long do you think these scams would last here? These people would be in prison. The Mexican gangsters run wild, and the federales are bought/scared off, many assisting the gangsters. That was over here in the 1930’s. The big gangsta here in the USA is the U.S. govt., and its endlessly-funded global war machine.

Comments are closed.