Mexico slow to embrace ethanol on funding issues

NEW YORK (Reuters) - Mexico is not expected to introduce ethanol into its gasoline mix any time soon despite the strong push in the United States to use green fuels produced from renewable resources, an oil consultant said on Monday.

"We are working closely with Mexico on their fuel oil quality program," said Tammy Klein, director, global biofuels and Americas, at the International Fuel Quality Center.

IFQC is a consulting firm specializing fuel quality issues.

"It is unlikely Mexico will use its existing funds (allocated for refinery investments) for ethanol," she said.

Mexico's clean fuel program includes cutting sulfur content in gasoline, as well as diesel in phases around the country.

The government is committed to invest in refinery infrastructure and blending facilities, putting an end to the conflict with state-owned oil firm Pemex on investments to upgrade refineries, she said.

The country's clean fuel program now is on the original schedule, Klein said. She said the introduction of ethanol would require more funding from the government.

Use of ethanol will require more investments in logistics and storage because the fuel, made mostly from corn, soybeans and sugar, cannot be shipped by the same pipelines that move other petroleum products because of its corrosive properties.

"Ethanol will not happen in Mexico any time soon," Klein said. "What we could see is the introduction of ETBE."

Ethyl tertiary butyl ether, created by mixing ethanol and isobutene, is commonly used as an oxygenate fuel additive in gasoline production in Europe and Japan.

Biofuels help cut emissions because they reduce fossil fuel use.

However, Klein conceded that the high cost of ETBE production could be a deterrent in Mexico.

Last October, Mexico introduced cleaner-burning premium gasoline to the local market, cutting the average sulfur content to 30 ppm from 250 ppm.

Mexico City, Guadalarjara and Monterrey would have to be ready to use only low sulfur regular gasoline with the average sulfur content of 30 parts per million (ppm) by October 2008, with the rest of the country to follow suit in 2009.

In addition to its own production, Mexico buys about 200,000 barrels per day of gasoline from the United States via the Gulf Coast. Mexico also buys the motor fuel from Europe and Latin America.

The country's gasoline demand was pegged at 700,000 bpd, of which about 120,000 bpd was of premium grade.