Mexico: The Hydrocarbons Sector Law incorporates formulation as a new regulated activity

This “formulation” refers to the blending of gasoline, diesel, and jet fuel with biofuels to meet the quality specifications established in the applicable regulations. 

It should be emphasized that this definition differs from the one originally proposed in the LSH initiative initially presented by the head of the Federal Executive. Previously, the activity of formulation also included blending petroleum products with additives to obtain other products.

This can be seen in the following table:

It is worth noting the elimination of the word “additives,” as the definition initially provided in the LSH initiative seemed to indicate that the activity of incorporating additives to petroleum products necessarily fell within the scope of formulation and, as will be detailed below, would therefore require a specific permit from the National Energy Commission (CNE).

Currently, section 3.1 of NOM-016-CRE- 2016 (quality specifications for petroleum products) defines additives as any chemical substance added to petroleum products to give them specific properties, excluding oxygenates added to gasoline and odorants added to liquefied petroleum gas.

However, for a definition of biofuels, the Biofuels Law, also published on March 18, establishes in Article 2, Section II, that biofuels are all gaseous, liquid, or solid fuels produced from the direct use of biomass for energy or obtained from its processing. Mixtures of biofuels with petroleum products are not considered biofuels.

On the other hand, it is important to note that, in accordance with the provisions of Article 76 of the LSH,  formulation as a new regulated activity requires the issuance of a permit by the CNE.

For its part, Article 84 of the LSH specifically regulates certain obligations that must be included in formulation permits, including certain products that are permitted to be formulated, the elements that must be complied with in the corresponding permit application, and indicating that formulated petroleum products must comply with the applicable Mexican Official Standards (NOM).

The products that are permitted to be formulated under the permit include, among others:

• Gasoline for final blending with biofuels, in accordance with the provisions of the NOM establishing the quality specifications for petroleum products.
• Diesel with biodiesel, in the proportions permitted by the NOM for quality specifications for biofuel blends issued by the competent authority.
• Jet fuel with bio jet fuel, in the proportions permitted in the official Mexican standards for quality specifications for biofuel blends issued by the competent authority.

Similarly, Article 85 of the LSH establishes that permit holders for formulation may carry out the other activities permitted under Title III of said law, provided that they have the corresponding permit.

Finally, for the sake of clarity regarding formulation and its implementation, we should note that the seventeenth transitory article of the LSH establishes that the granting of the corresponding permits shall not begin until: i) the NOMs on quality specifications for permitted blends are issued; ii) the necessary quality infrastructure is in place to assess their conformity, in accordance with the Quality Infrastructure Law; and iii) the Ministry of Energy issues the corresponding declaration.

In view of the above, no formulation permits will be granted, at least in the short term, until the relevant NOMs have been issued and the necessary infrastructure for their evaluation is in place. It is important to wait for the issuance of the LSH regulations, provisions, rules, and other applicable regulations for further details and clarity regarding formulation.