Mexico’s AMLO pledges energy prices will not rise during Ukraine conflict

Gasoline, diesel and electricity prices in Mexico will not rise above inflation despite turmoil in global energy markets caused by Russia’s invasion of Ukraine , according to Mexican President Andrés Manuel López Obrador.

During his morning press briefings on Tuesday and Wednesday, López Obrador said the government would continue to subsidize gasoline prices even as global oil prices soar. He explained that the government will pay for the subsidies with “surplus” oil export revenues brought in by state oil company Petróleos Mexicanos (Pemex) due to soaring global crude prices.

“It is important that all Mexicans know that we are not going to have problems with fuel or electricity price increases, despite the invasion and the war in Ukraine,” the president said.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

He cited that under his administration, Pemex had “stabilized” a 14-year decline in crude production, adding that production was now “above what we received” when he took office in December. 2018.

He added that Mexican gasoline imports had fallen by 45% under his tenure following the rehabilitation of Pemex’s six refineries in Mexico and the 100% acquisition of the Deer Park refinery in Texas.

Pemex gasoline imports averaged 341,800 bpd in January, compared to 598,400 bpd in 2018.

“If we don’t control the price of fuels and electricity, it will skyrocket,” said López Obrador, explaining that price caps will help control inflation.

He quoted that in Europe “they are suffering a lot because of the increase in gas and electricity prices…”

Natural gas accounts for more than 60% of Mexico’s electricity supply, and up to 90% of the gas arrives by pipeline from the United States.

Natural gas traded in Europe for April delivery settled at $68.67/MMBtu on Tuesday, more than 15 times the US benchmark Henry Hub.

Even the Henry Hub price, however, came in on Tuesday up around 79% year-over-year.

Although state power producer Comisión Federal de Electricidad (CFE) has implemented hedges to offset volatility in natural gas prices, that will certainly not be enough, according to Gonzalo Monroy, a Mexico-based energy expert.

He said NGI Mexico GPI that “if the president keeps his promise not to raise electricity prices, we will see higher volumes of electricity subsidies”.

After already subsidizing 100% of the excise tax (known by its Spanish initials IEPS) on gasoline sales in February to combat rising prices, Mexico’s finance ministry on Sunday announced additional tax breaks on the fuel.

The ministry said that “geopolitical tensions around the world have led to sharp increases in crude chunks and international benchmarks for gasoline and diesel, fuels essential to the mobility of people and the transportation of goods.” As a result, the government “deemed it necessary to deliver an additional relaunch of the IEPS for petrol and diesel”.

Monroy explained that López Obrador campaigned on popular anger over the liberalization of fuel prices in 2017, the result of Mexico’s 2013-2014 energy reform. Since taking office, he has promised not to let fuel prices rise in real terms.

However, those pledges were based on past inflation forecasts, Monroy said.

Mexico’s 12-month inflation rate stood at 7.28% in February, down from 3.76% in the same month last year, according to national statistics institute INEGI.

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