From The Wall Street Journal

Mexico faced a mounting crisis on Wednesday as gasoline shortages spread across the country after the government closed several key fuel pipelines to prevent theft by organized crime groups.

Mexican President Andrés Manuel López Obrador on Wednesday urged motorists to avoid filling up their cars if possible, as the gasoline shortage spread to the nation’s capital, sparking long lines at filling stations.

Over the weekend, state-oil-company Petróleos Mexicanos, or Pemex, closed several of the main gasoline pipelines that run from Mexico’s six oil refineries to distribution centers in large cities, and switched to a slower and more costly system of shipping gasoline to filling stations by road on tanker trucks.

The move was designed to thwart organized crime groups that steal billions of dollars worth of gasoline, diesel and other refined products from pipelines each year. But it triggered shortages across the country, starting in Jalisco, the home of Mexico’s second-biggest city, Guadalajara, and spreading on Tuesday to Mexico City and the surrounding Mexico State, home to a combined 25 million people.

The crisis represents a major early challenge for the new president. Many industry analysts said the new system was a worthwhile effort but that the government failed to adequately prepare the for the transition by educating the public and ensuring there were sufficient tankers and fuel supplies in distribution terminals.

“It just shows that the new administration’s learning curve is really steep for the energy sector, and they’re going to pay a political price for this,” said Dwight Dyer, a former official in Mexico’s Energy Ministry who now works as an independent consultant.

Gasoline has long been a sensitive issue in Mexico, one of the world’s biggest consumers of the fuel at 800,000 barrels per day. When the government lowered tax subsidies in 2017 and prices soared—what Mexicans call the “gasolinazo”—widespread protests took place, including blockades of service stations and looting. Mr. López Obrador campaigned against the 2013 energy reform law that opened up Mexico’s oil sector to competition from private companies and has taken steps to weaken some of its key tenets. On Wednesday he called for patience.

“We ask all citizens that you help us, that you support us in not letting criminals win,” the president said. “It would be easy to open the pipelines, and say, everything is back to normal, but it would mean accepting and tolerating fuel theft. We’re not going to do that.”

Mr. López Obrador described the use of tanker trucks as a “new distribution system” and said that the situation would normalize as soon as it was fully rolled out.

Pemex said there was no shortage and that panic buying was the only reason why some fuel stations are running out of fuel.

“There is sufficient product to meet demand,” a Pemex spokesman said in a video message released Tuesday, showing tanker trucks lining up at refineries and workers repairing pipelines. Pemex officials couldn’t be reached for further comment.

Some people dismissed that.

“To say there is no shortage is a big lie,” wrote Gustavo de Hoyos, the head of the country’s largest business chamber, on Twitter. “Millions of people and thousands of businesses can testify to that.”

Since December, when Mr. Lopez Obrador took power, the government has deployed 900 soldiers and 4,000 military police to vulnerable points in the gasoline supply chain to prevent theft. Mexican marines are currently protecting refineries, where tanker trucks are filling up.

But the efforts have proven insufficient and unsustainable because troops can’t stay there for good and there aren’t enough of them to cover Pemex’s 5,500 miles of fuel pipelines, said Gonzalo Monroy, an independent energy consultant in Mexico City.

Eventually pipelines will have to be opened, and the thieves will start tapping in. “It’s an endless game of cat and mouse,” he said.

As criminal groups in Mexico fragmented in recent years after the arrests or killings of top kingpins, they have increasingly relied on rackets other than drug trafficking, including kidnapping, extortion and fuel theft.

A report commissioned this year by Mexico’s downstream energy regulator found that at least eight organized crime groups, including several large drug cartels, rob Pemex’s gasoline-distribution network.

Pemex reported 12,581 illegal tappings of its pipelines in the first 10 months of 2018, compared with 10,363 for the entire year of 2017. Most of the theft is concentrated in the states of Guanajuato, Hidalgo, Jalisco and Puebla, where fuel pipelines pass through on their way from refineries to large cities.

Last year, Mr. López Obrador said fuel theft was costing Mexico more than $3 billion per year, while the previous administration reported annual losses from theft of just over $1 billion.

But solving the problem has been nettlesome for years because most fuel theft occurs in rural areas and with the help of information from corrupt workers at Pemex and its contractors, who tip off thieves to pressure levels in the pipelines and locations where the ducts are vulnerable, regulators say.

Mr. López Obrador’s approach—shutting down the pipelines altogether and transporting gasoline by road—is novel, but costly. Shipping gasoline by tanker truck costs about 13.5 times more than shipping it by pipeline, according to a 2016 report by Mexico’s federal Competition Commission.

“The previous government was unable to solve the problem, but the new government’s solution is absurd in terms of cost,” said Mr. Dyer, the consultant. “It might take a few days to repair the pipelines, but it might take weeks, and in the meantime, panic purchases are spreading. Is the next move to close the banks to deter bank robbers?”


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