The price of liquified petroleum gas (‘LPG’) in Mexico rose by 36% at the end of March, reported the Energy Regulatory Commission (CRE), apparently due to price adjustments in the international market. Hmmm.
LPG is the fuel of choice for domestic consumption in Mexico, with 76% of families using it. The rise in prices has a significant impact on the poorest households and is already having an impact on Mexico’s rate of inflation.
Although the government has not yet commented on the trend, the Federal Commission of Economic Competition (COFECE) launched a probe to investigate a number of companies for price manipulation and anti-competitive practices.
An energy market analyst in Mexico commented, “The impact of price manipulation is important for Mexican families as they notice the impact on their pockets immediately. On top of price manipulation demand is also starting to grow as the economy reactivates. Taken together, these two factors have increased the gas bill for the average family by 50% in a year!”
“The impact of price manipulation is important for Mexican families […] these two factors have increased the gas bill for the average family by 50% in year!”
Energy market analyst, Mexico
COFECE concluded its inquiry indicating the probable existence of collusion agreements and have notified a number of companies, the names of which have not been disclosed yet, for their probable responsibility participation in illegal agreements to manipulate LPG prices.
A respected energy industry consultant explained the local context, “The LPG market in Mexico is highly concentrated so it is not hard to deduce who is under investigation. Grupo Zeta has a 60% market share and it is rumoured that there may be arrangements between Grupo Tomza, Gas Uribe, Vela Gas and Gas Nieto.”
“The LPG market in Mexico is highly concentrated so it is not hard to deduce who is under investigation.”
Energy industry consultant, Mexico
These monopolistic practices have been denounced by other market participants such as Blue Propane which argues that both the CRE and COFECE have tolerated such behaviour for too long. In addition, the company argues that it was targeted by 179 investigations in Tijuana, Baja California, in what they labelled illegal persecution by local authorities seeking to protect their competitors. The claims have not been corroborated but show the extent of the problem.
An independent adviser to SENER (Mexico’s Secretariat of Energy) explained that fixing the market will not be easy, “Breaking this concentration of market power is a daunting task for the time that the cartel has been entrenched but given the national importance of LPG for domestic consumption it is essential to start the process.”
Meanwhile, President Andrés Manuel López Obrador (AMLO), in all his wisdom, has recommended to the people of Mexico that they do their own market study and try to choose the cheapest option!
To make matters worse, the Mexican Association of LPG distributors (Amexgas) has reported an increase of illegal LPG extraction over the last two years. According to Amexgas the country registered 23,000 illegal taps in 2020 which amounted to the theft of 14% of the total LPG production for the year which was later re-sold by criminal gangs, mostly in Mexico City.