The changing face of Mexico's O&G theft problem

Beyond output and exploration, Mexico’s oil future relies on checking fuel losses. 

In recent years, Mexico's state oil company Pemex has been weakened by hundreds of cuts, as low-level robbers illegally tapped oil lines snaking through remote areas, a practice that’s become known as huachicoleo. 

Mexican President Andrés Manuel López Obrador’s (AMLO) has made ending fuel theft a centerpiece of his strategy to boost the output of NOC Pemex, pressing the military into service to monitor and prevent those participating, or huachicoleros. 

In 3Q19, there have been clear signs of success. In September, AMLO reported in his first address to congress that fuel robbery has fallen by 94% over a year. 

Two weeks ago, a Pemex official reported during the company’s Q3 conference call: “As a result of the determined intervention of the Mexican government to combat fuel theft, the company’s financial results improved.” 

Indeed, the company reported that non-operating losses from fuel theft shrank by 91%, resulting in savings of 9.6bn pesos (US$502mn) in Q3 compared with the same period of last year. 

Source: Pemex

According to Pemex, the company lost 27.6bn pesos to fuel theft over the first three quarters of 2018, but stemmed the losses to 3.7bn pesos over the same period in 2019. 

Still, despite the recent evidence that the strategy to check fuel loss is working, the forms of fuel theft also appear to be changing. Here are some of the emerging shifts in fuel theft in Mexico:

Freight transport companies reacquiring fuel from gas stations

“We have noticed that some big clients, mainly freight transport companies that were probably supplied by the informal market, have recently returned to gasoline stations,” Roberto Díaz, the head of gasoline retailers’ association Onexpo, told the Wall Street Journal mid-year. 

Amid the dramatic rise in the number of illegal pipeline taps in recent years, freight-transport companies were thought to be major purchasers of stolen fuel. 

But as the government crackdown took hold this year, the risk of being caught has led freight companies to return to buying fuel via legal sources, plumping revenues at northern gas station chains. 

Also, since an explosion at an illegal fuel tap site in Hidalgo state killed at least 137 people in January of this year, Pemex appears to have improved its coordination of fuel cutoffs, thus allowing the company to limit illegal taps, while also preventing social unrest in rural communities. 

However, part of this strategy has involved the use of trucks to transport fuel, a practice that is roughly 10 times as expensive in transportation via pipelines.  

Piracy on the rise

Since October 2018, there has been a spate of nighttime raids, with pirates besieging offshore oil rigs, venturing as far as 130km from the shore to rob rig equipment, copper wiring, and other items that can be resold. 

Last year, the Maritime Herald estimated that robbery by pirates, a category that includes aggression and looting, rose by 310%. 

In April, pirates locked up the crew of the oilfield company Oro Negro at the Fortius area while they looted the rig. 

Over the course of 2019, piracy against Pemex offshore rigs has centered on two regions, in the waters of Campeche in the vicinity of the Cantarell field, and the waters stretching between Campeche and Tabasco state, offshore from the Dos Bocas site. 

In turn, AMLO has dispatched the navy to constantly patrol the waters off the coast of Dos Bocas. 

Drug gangs are getting more sophisticated in tapping operations

In areas of Puebla, Tabasco and Jalisco states, the Zetas cartel has strengthened its hold over Pemex pipeline taps. 

Meanwhile, around the city of Reynosa the Gulf cartel has become increasingly active in fuel tapping, according to El Universal.

Though drug gangs have used oil tapping as a source of revenue for years, the scale appears to have increased over the past 12-18 months. 

Instead of tapping pipelines in a bid to make quick revenue, in some cases the drug cartels are storing fuel in abandoned water pipelines, possibly awaiting price rises before scheduling sales.