Authored by Matthew Smith via OilPrice.com,
Fueled by copious sums of drug money, large cartels have taken control of large swathes of Mexico and for over a decade have been challenging the rule of law and the state.
The systemic theft of crude oil and derivative products, most notably the theft of gasoline, has long plagued Mexico’s hydrocarbon sector with it estimated that organized crime groups are earning up to $400 million annually from the theft of petroleum and refined products. The scale of the problem was highlighted by Mexico’s national oil company Pemex, estimating in early 2018 that oil theft was costing it more than $1.6 billion annually. Petroleum theft, including refined products, in the violence-driven Latin American country typically is performed using illegal pipeline taps. Dwindling petroleum output and heavy indebtedness along with rampant fuel theft was severely impacting the national oil company’s performance.
By 2018 the problem was so severe that during that year alone it was estimated that a record number of 14,910 illegal taps were identified on its 10,563-mile-long pipeline network. Mexico’s national oil company estimated that during 2018 it was losing around 74,000 barrels of crude oil daily to petroleum thieves, known locally as huachicoleros. The situation was so severe that police intervention was insufficient and the Mexican army was called upon to confront thieves sporting military-grade automatic weapons in light armored vehicles. Such a substantial volume of petroleum theft was sharply impacting Mexico’s economy where over 2% of gross domestic product and around 6% of export income is generated by the oil industry. The problem was so grave and having such a sharp impact on Pemex’s and ultimately the government's revenues that on gaining Mexico’s top job in December 2018, President Andrés Manuel López Obrador launched a major crackdown on oil theft. That reputedly saw the volume of crude oil being lost by Pemex to theft plunge to around 5,600 barrels per day by the end of 2020 or less than a tenth of what it had been two years earlier. The notable reduction in petroleum theft saw President Obrador declare victory over petroleum theft in early 2019. Despite the significant progress made in stamping out hydrocarbon theft, there are signs that it's rising once again and the declaration of victory by authorities was premature.
The COVID-19 pandemic has had a marked impact on Latin America’s second-largest economy causing its gross domestic product to contract by 8.2% during 2020 with poverty and unemployment rising sharply. This coupled with a resurgence in organized criminal activity triggered a marked increase in petroleum theft in Mexico.
Data shows that illegal valves (Spanish) on Pemex’s pipelines for the period of January to April 2021 rose by a worrying 9.5% compared to the same period a year earlier. That is compared to 11,022 illegal taps identified on Pemex’s pipeline network for the full-year 2020 and 13,137 for 2019. It is the states of Hidalgo, Puebla, and the State of Mexico which are the focal points for petroleum theft, and where most stolen refined products are recovered by Mexican authorities. Those numbers indicate not only that President Obrador's declaration of victory was premature, but that petroleum theft is rising with authorities struggling to prevent it from occurring.
The sharp spike in hydrocarbon theft is further illustrated by authorities seizing an ever-greater volume of stolen fuels and other derivative petroleum products. It is the states of Hidalgo, Puebla, and the State of Mexico which have experienced the largest increase. During the first two months of 2021 authorities made 794 seizures (Spanish) of stolen hydrocarbons in Hidalgo, which has long been a hotspot for petroleum theft, compared to 581 recoveries during 2020. That worrying 37% increase indicates that the theft of refined petroleum products has surged since the start of 2021 as the economic fallout triggered by the pandemic continues to hit hard in Mexico. Oil thieves in Latin America’s second-largest oil producer are becoming increasingly ingenious and brazen in their attempts to avoid detection while stealing ever greater quantities of oil and derivative products. This has seen huachicoleros resort to using underground tunnels (Spanish) to avoid detection and siphon fuel from illicit taps on pipelines to concealed warehouses. This marked increase in petroleum theft since the start of 2021 will impact Pemex’s operations, government revenues, and ultimately the economy.
While the days of applying illegal valves and openly siphoning petroleum products from Mexico’s pipelines are over, hydrocarbon theft remains a pressing problem plaguing the economically crucial oil industry. That is why President Obrador must continue to devote considerable resources to combating hydrocarbon theft in Latin America’s second-largest economy.