Up, up and away (with gasoline prices)

I got in touch with my “inner wonk” the other night after reading a discussion on the Lonely Planet Message Board about this week’s PEMEX pump price rise (Diesel – $6.58 MXP per liter or approx. $2.44 USD per gallon; Magna (Regular) – $7.38 MXP per liter or approx. $2.74 USD per gallon; Premium – $9.21 MXP per liter or approx. $3.42 USD per gallon).

A lot of people just “assume” that because the price right now is lower than in the United States, and because Mexico has to import 40% of its refined gasoline that this is a “subsidy”.

“Mazgringo” gave the background on most obvious reason for importing gasoline:

There was a time, many years ago, when unleaded became the gasoline necessary, that México did have to import 100% of their unleaded gasoline from the U.S. because they had no refineries capable of desulphurizing the crude. Desulphurizing is necessary, as sulphur destroys catalytic converters just as quickly as lead.

However, all the Mexican refining capability has either been converted or is new enough to have desulphurizing built in now and México produces a little more than 60% of its needs right here in México.

Add that the Mexican administrations, from Salinas de Gortari (like his north of the border counterpart, Ronald Reagan) recognized that it’s politically advantageous in at least the short run to trumpet lower taxes… even at the risk of destroying the country’s infrastructure. In Mexico, this meant ignoring necessary capital improvements at PEMEX, and also using PEMEX profits to fill the treasury’s general funds without resorting to direct taxation.

The Mexican economy was doing relatively well (though, like in the U.S., some were getting much richer, much faster than others) up through the Fox Administration (as did the U.S. through the end of the Clinton Era).

Whiler there was some indirect taxation at the pump, making Mexican gasoline prices HIGHER than in the U.S. until 2004, Mexican auto sales did well. There was an expanding middle-class who could afford to buy cars. from about 90 auto owners per thousand people in 1994 to over 200 in 2004. More cars, more gas purchases.. less domestic supply from inadequate refineries, more imports.

However, the Federal treasury was dependent on PEMEX for most of its revenue, and only last year was the tax code changed to shift the burden to taxpayers. With Mexican bankers (and many others, to be sure) convinced inflation was a greater danger to the Mexican economy than continued dependence on exports to the United States, there has been pressure on the government to keep the gasoline prices low.

No matter what else changes at PEMEX, more refineries must be built and gasoline prices have to rise. Secretary of the Treasury Augustin Carstens has tried to soften the effect, merely moving the monthly price change to an 18 month schedule. However, this has not been enough. As of next Monday, price changes will be every week… Magna (Regular) gasoline should reach a price of between 8.50 and 9.00 pesos per liter (about 3.10 US a gallon) by the end of 2009. This will still be a significantly lower than U.S. prices, but then… Mexico is an oil producing country, and will still be refining some — but a lot less — of its gasoline in the United States.

And, using more alternatives fuels.

(Source: Jornada; Thorn Tree; OECD statistics)