Illegal Refineries Could Feed Low-Quality Fuels Into Mexico’s Market, Expert Say
Mexico’s discovery of illegal facilities capable of rudimentary crude processing suggests an evolution in fuel theft, with experts warning that low-quality products derived from stolen crude could eventually enter informal or legitimate fuel supply chains.
Mexican authorities in August shut down at least four facilities operating as illegal storage sites equipped with rudimentary systems to process crude, marking a shift from the more common discovery of storage facilities storing stolen gasoline or diesel.
Mexican authorities during that operation seized approximately 1.1 million liters (6,919 bbl) of suspected hydrocarbons and chemical products across the four facilities in the states of San Luis Potosí, Hidalgo and Morelos.
The equipment found at the sites was presumptively capable of carrying out extremely simple thermal processing in which crude is heated to separate its components, Marcial Díaz Ibarra, a consultant with Mexico City-based firm QUA Energy, told OPIS. “They are no longer just tapping fuel pipelines, but also pipelines carrying crude.”
Such processing would likely produce naphtha, some diesel-range material and a large proportion of fuel oil, along with other products that would fall well short of commercial fuel-quality and octane specifications.
Those products could potentially be blended with other substances or with commercially purchased fuels and then sold through informal outlets or introduced into legitimate distribution channels, Díaz said. Such practices could allow illegal sellers to increase margins while making low-quality products more difficult to identify.
While these off-spec refined product volumes may be insignificant compared with the total Pemex crude processing at its seven refineries, it is still concerning if the resulting products are used to adulterate commercial fuels or sold through informal channels, Díaz said.
The issue comes as Pemex continues to face widespread crude and refined-product theft from its pipeline network. The state-owned oil company identified 10,591 illegal pipeline taps in 2025, according to its August filing with the U.S. Securities and Exchange Commission.
“The measures we have taken in conjunction with the Mexican government to reduce the illicit fuel market have not resulted in sustained improvement,” the state-owned company said in the filing.
The company also warned that some of its employees or public officials could participate, or be perceived as participating, in the illicit fuel market, underscoring the difficulty of controlling theft once hydrocarbons leave the legitimate supply chain.
Luis Miguel Labardini, managing partner at Energy Experts, a Mexico City-based investment banking firm focused on the energy sector, said the emergence of crude-processing sites reflects vulnerabilities across Mexico’s hydrocarbon supply chain.
“There could be negligence or corruption within Pemex, on the one hand, and also on the part of authorities, because they allow the theft of hydrocarbons and, secondly, the operation of these facilities,” Labardini said.
Reversing the trend will require greater government intervention throughout the supply chain, from crude production and processing through the point at which refined fuels reach the market, Labardini said.
The government has shown signs of increasing efforts to combat illicit fuel activity, including tighter fuel traceability requirements, he said. However, authorities must also address the source of the illicit supply chain.
“There is a willingness on the part of the administration to combat these practices, but although the actions are welcome, they have not been sufficient,” Labardini said.