Mexico bans Vitol, Trafigura from new oil trades on corruption allegations

Max de Haldevang and Amy Stillman August 20, 2021

MEXICO CITY (Bloomberg) --Vitol Group and Trafigura Group -- both barred from new oil-trading business with Mexico’s state producer for alleged corruption -- will be subject to the ban until at least the end of 2024 while the government reviews the conduct of other commodity traders, Energy Minister Rocio Nahle said.

Pemex won’t give new work to Vitol and Trafigura, two of the world’s largest commodity trading houses, for at least the remainder of Andres Manuel Lopez Obrador’s six-year term, Nahle told Bloomberg News during an interview. The Mexican government is reviewing other oil-trading firms’ conduct and will suspend work with any company found to have committed wrong doing, she said.

In recent years, the world’s most powerful commodity traders have faced bribery and corruption investigations in a worldwide crackdown that has spanned jurisdictions from the U.S. and Switzerland to Brazil and Mexico. Lopez Obrador swept to power on pledges to revive Mexico’s state oil giant to its former glory and reduce the influence of private energy operators that he often characterized as corrupt.

“Those who are carrying out corruption shouldn’t be in Mexico,” Nahle, 57, a longtime ally of Lopez Obrador who also chairs Pemex’s board, said Thursday at her office in Villahermosa, in Mexico’s southeastern state of Tabasco. “We are working to leave a country with good practices.”

Trafigura sees no basis for new business to be suspended, and its compliance policies and procedures have been fully reviewed and found by an independent external counsel to meet the highest standard required by law across all jurisdictions in which Trafigura operates, a spokesperson for the firm said. Trafigura strongly refutes any allegation or suggestion of corruption, the spokesperson said.

Representatives from Vitol didn’t immediately respond to requests for comment. In the past, Vitol has said it’s committed to upholding the law and has anti-bribery and anti-corruption policies, procedures and controls across its business activities.

In December, Pemex’s trading arm PMI suspended new business with Vitol after the firm agreed to a $160 million settlement over charges that it plotted to pay bribes in Brazil, Mexico and Ecuador. The allegations included bribes paid to Pemex officials as recently as last year, and the government and the Mexican producer have launched their own investigation into Vitol.

In July, PMI temporarily banned new work with Trafigura, though existing deals are being respected, according to people familiar with the situation.

Oil Hedging

Nahle also said Mexico is in the process of hedging oil export prices, but declined to give details or say whether the country has started buying options in the market.

“The Finance Ministry is on that,” she said. Just like they do “every year, they are looking at the way.”

The country’s hedge to protect against price fluctuations in the international market is the largest annual oil deal on Wall Street and usually attracts huge interest from bankers, traders and commodity watchers. Arturo Herrera, who recently stepped down as Finance Minister, said in February that Mexico was taking a new approach to the hedging program, aiming to spread its purchases over time and possibly buying insurance during the same year the protection is for.

Dos Bocas

Nahle has been steering Mexico’s refinery plans since before she became energy minister and Lopez Obrador the president. In 2017, the then-congresswoman toured the world’s largest refining complex in India, viewing Reliance Industries Ltd.’s giant Jamnagar plant as a model for the planned 240,000-barrel-a-day Dos Bocas refinery in Lopez Obrador’s home state of Tabasco.

Dos Bocas is on track to begin running startup tests in July and to be open for business a few months later during 2022, Nahle said. The project’s cost remains at $8.9 billion, plus or minus 10%, she said.

Alongside spearheading the project, Nahle has reduced Mexico’s dependence on fuel imports by raising output at the country’s six existing refineries. They processed an average 706,000 barrels of oil a day in the first six months of the year, up 22% from the same period two years ago.

Nahle’s success in refining, however, has come at a cost for the environment. Pemex is producing more fuel oil -- a highly polluting refined product that was banned for international ship use -- because the refineries lack the technology to extract cleaner fuels from the sludge that is left over after converting crude to gasoline.

“Of course we are increasing fuel oil, because the refineries are getting more cargoes” of oil, she said. But the government intends to “phase out” fuel oil production with the reconfiguration of several of its refineries in central Mexico by 2023, and Dos Bocas will not produce fuel oil. “It doesn’t worry me.”

She also said that state utility CFE “burns very little fuel oil,” purchasing about 45,000 barrels a day from Pemex. Switching a gas-power plant to fuel oil generates 16% more carbon dioxide, according to BloombergNEF calculations.

Nahle said that Pemex was installing separation batteries at its onshore exploratory fields such as Quesqui and Ixachi to be able to process more natural gas instead of flaring it. Pemex reported a double-digit rise in pollutants in the second quarter of the year compared to a year ago, which it said was due, in large part, to corrective refinery maintenance and venting natural gas.

Oil Prices

Nahle has also represented the government at key OPEC+ meetings, not shying away from dissenting at times with the most powerful energy players in the world.

She said oil prices “could drop a bit” as major producers such as Saudi Arabia, the United Arab Emirates and Russia gradually increase output after drastic cuts last year to stem an unprecedented pandemic-driven market crash. 

“Countries that cut their oil flows are restoring their production, but they are doing it little by little, in a responsible manner,” she said.

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