Petroleumworld 10 13 2017
At a Rice University forum last year, Mexican Energy Secretary Pedro Joaquin Coldwell was asked whether his government would allow refiners to increase the concentrations of ethanol in gasoline beyond the 5.8 percent that it had just approved. Coldwell gave an emphatic no.
"If it goes above that, it can generate a lot of ozone," he said, referring to an air pollutant linked to increased asthma rates. "So that is the rule."
But just nine months later, the Mexican government changed its regulations to permit up to 10 percent ethanol in gasoline -- the same level as the United States. That ruling is now under court review, but it represents a major victory for American ethanol producers, which only 18 months earlier had launched an intensive lobbying campaign to outmaneuver an entrenched chemical industry that has long dominated the Mexican fuel additives market.
The contest between corn and petroleum, fought for years in the U.S. Congress, has moved south of the border, where some of the world's biggest chemical and biofuels companies are vying to control a small, but lucrative niche in the world's fourth largest gasoline market. With Mexico in the midst of a historic attempt to open its state-run energy sector to foreign investment, firms like the Houston petrochemical maker LyondellBasell and the agricultural conglomerate Archer Daniels Midland are sending lobbyists and consultants to Mexico City to meet with energy officials and host educational forums in an attempt to sway the government's plans for Mexico's fuel supply.
"Everyone in the fuel and gasoline business is down in Mexico right now," said Kristy Moore, an Illinois-based energy consultant working for ethanol companies. "All my same people I work with in the United States, every major oil company."
Mexico is just one front in a global battle to grab share of the fuel additives market, particularly in emerging economies in Asia and Latin America. Modern automobiles don't run well on pure gasoline. Pistons misfire; engine parts wear down more quickly, so gasoline retailers have long relied on additives to help cars run more smoothly – what is referred to in marketing slogans as octane.
For decades, octane came from lead, which was banned as a gasoline additive in the 1990s, then the chemical methyl tert-butyl ether, or MTBE. Since 2004, however, approximately half of U.S. states have banned MTBE, a known carcinogen, after it was found leaching from underground storage tanks at gas stations into drinking water supplies.
Taking its place is ethanol, a biofuel largely made from corn that possesses a particularly high octane and now makes up 10 percent of the U.S. fuel supply. But across much of Asia, Latin America and even parts of Europe, MTBE remains in great demand.
"It's still legal in most countries in the world," said George Martin, editor-in-chief of Latin America for the energy data firm ICIS. "It goes all over Latin America and Asia. The market is improving with the demographic changes there, as population increases and more people drive."
And much of it comes from the United States. Even though MTBE production here is far below what it was a decade ago, it remains a more than $1 billion a year industry and growing, with output up more than 30 percent since 2014, according to the U.S. Energy Department.
LyondellBasell, which maintains its headquarters in Houston, is building a $2.4 billion plant on the Houston Ship Channel to produce two chemicals, one of them, tertiary butyl alcohol , which is the primary feedstock for MTBE.
But with Mexico's announcement in June that it would blend more ethanol into its fuel supply, suddenly all of that is under threat. Last year, Mexico imported more than half of the entire U.S. output of MTBE – more than 8 million barrels.
The June decision "caught a lot of people off guard," said Ed Aviles, a former lawyer for LyondellBasell who now serves as executive director of the Latin America Clean Fuels Association, a nonprofit representing MTBE manufacturers in Mexico. "The ethanol lobby is very good at what they do. They have a compelling strategy, and they've gone into Mexico trying to grow ethanol's market share."
U.S. ethanol exports (2016) – 27.9 million barrels
U.S. MTBE exports (2016) – 15.6 million barrels
MTBE exports by country in 2016 (barrels)
1. Mexico – 8.7 million
2. Venezuela – 3.9 million
3. Chile – 2.5 million
Ethanol exports by country in 2016 (barrels)
1. Canada – 7.4 million
2. Brazil – 6.6 million
3. China – 4.7 million
8. Mexico – 708,000
Source: Energy Department
For decades, Mexico's fuel industry had operated virtually unchanged by the state-run monopoly Pemex, which not only drilled for oil, but also refined it and owned all the nation's gas stations.
Then, in December 2014, Mexican President Enrique Pena Nieto won an unlikely victory when he passed an historic energy reform package through the Mexican Congress, with an aim to opening Mexico's struggling oil, power and fuel sectors to foreign companies. Just over a year later, Moore, the ethanol consultant, said she received a call from a client in the ethanol industry – she would not say who – asking her to "learn everything we need to do to get ethanol into Mexico."
Soon the U.S. Department of Agriculture arranged a workshop in Mexico City so Mexican officials could meet with regulators from Columbia and Paraguay, who had recently implemented their own biofuels program. At the same time, Moore started meeting with officials at the Ministry of Energy and the Energy Regulatory Commission, to work on convincing them to integrate ethanol into their fuel supply and not rely solely on oil production to ease its energy shortfalls.
"You've got a Mexico government that is moving at an incredibly rapid pace," Moore said. "The mindset was we're going to allow more oil companies, they're going to solve our supplies issues."
Those supply issues came into focus at the end of last year, when the Mexican government, which had long subsidized gasoline for its citizens, officials announced prices at the pump would rise as much as 20 percent as part of the market reforms. That move sparked riots across the country, forcing stations to shut down and leading to the deaths of four people and the arrests of hundred more.
Ethanol lobbyists made the case that if Mexico was to achieve a gasoline market like the United States, where pump prices typically run about 30 percent cheaper, its best chance was to adopt the American ethanol standard of 10 percent, which would allow more U.S. gasoline to flow across the border. Mexican regulators bought the argument, saying at the time of the June announcement that earlier regulations represented "a barrier for those who plan to import into Mexico gasoline used in the United States of America. "
For American ethanol companies, which have seen their attempts to raise domestic ethanol mandates to as much as 15 percent of motor fuel stymied in Washington, expanding exports abroad has become critical to their growth strategy. In addition to Mexico, Midwestern producers are targeting India, China and Peru for expansion, said Bob Dinneen, president of the Renewable Fuels Association, a trade group for ethanol makers..
"We're likely to break our all-time record on exports this year," he said.
Not so fast
Their expansion into Mexico, however, will have to wait. A Mexican judge this week granted an injunction blocking the government from implementing the new ethanol mandate after Mexican environmental groups, led by Gabriel Quadri, a former presidential candidate, filed suit claiming that more ethanol in the fuel supply would worsen air pollution
Government officials are expected to appeal the ruling, according to Reuters, but it will likely delay implementation until at least next year.
The topic of the effects of ethanol on air pollution is a controversial one. Competing studies disagree not only on ethanol's impact on ozone – a major factor in asthma rates – but also on greenhouse gas emissions accelerating climate change.
As the ethanol lobbyists campaign in Mexico picked up steam earlier this year, the chemical industry responded with data and government studies showing the environmental benefits of MTBE over ethanol.
The U.S. Environmental Protection Agency describes high doses of MTBE as increasing the risk of cancer. But a presentation made to Mexican energy regulators in May by representatives of Exxon Mobil, one of the world's largest chemical producers, described the potential harm if MTBE were to spill and leach into underground aquifers as "a disagreeable flavor" in drinking water supplies.
An Exxon spokesman declined to comment.
At the same, chemical companies have worked to shore up relationships with allies in Mexico. Aviles, the president of the MTBE producers group, said following the June decision he spoke with Quadri, the politician leading the charge against ethanol. Quadri did not respond to requests for comment.
"We just spoke about the ruling and what his position was," Aviles said. "It's very difficult to predict anything. We've been surprised by how the process has gone."