Californians are traveling to Mexico for cheaper gas, as fuel prices surge following the Russian invasion of Ukraine, according to The San Diego Union-Tribune and the Los Angeles Times.
The national average price for unleaded gasoline on Friday was $4.24 per gallon according to AAA, while in California, drivers are spending an average $5.9 per gallon and as much as $6.05 in Los Angeles.
At $3.96 a gallon in Tijuana, Mexico, the San Diego Union-Tribune and the Los Angeles Times reported, gas prices are a good $2 lower than in California, encouraging many to cross the border to fill up their tanks.
Californians aren’t alone in seeking cheaper gas out of the country. Drivers in El Paso, Texas, are also crossing the border into Mexico to fill up on gas, the New York Post reported on March 11. This week, the average price of gas in Texas has dropped from $4.23 per gallon to $3.82.
A drastic rise in fuel prices has followed the beginning of the war in Ukraine, exacerbating price surges already triggered by global inflation.
Stable Prices in Mexico
Despite this, prices for gas have remained relatively stable in Mexico, thanks to President Andrés Manuel López Obrador’s pledge to keep oil prices under control by providing subsidies to Mexican oil companies and refineries.
Mexico is one of the largest oil producers in the world, with 1.9 billion barrels of oil produced daily in 2020, according to the U.S. International Trade Organization (ITA). Despite this, Mexico’s oil production has been in steady decline for several years and, because of a lack of refineries, the country imports most of its gasoline from the U.S.
In 2020, the latest data available from the ITA, Mexico exported over 240 million barrels of crude oil to the U.S. and imported over 1 million barrels per day of refined petroleum products from the U.S.—more than 70 percent of the total gasoline, diesel, natural gas and jet fuel consumption of the country.
López Obrador, in power since December 2018, has been trying to transform Mexico into a gasoline self-sufficient country. He took office with the promise to revive state-owned oil giant Petróleos Mexicanos (Pemex) and achieve energy independence.
The president announced plans that many have interpreted as reversing the 2013 liberalizing energy reform of his predecessor Enrique Peña Nieto.
“He’s someone who thinks like someone in the 1970s, he really thinks about how important it is for a sovereign country to be independent in gasoline,” Rafael Fernández de Castro Medina, director of the Center for U.S.-Mexican Studies at UC San Diego, told Newsweek.
“So what he’s doing right now, he’s not only having a negative tax – the IEPS – for gasoline, but he’s also heavily subsidizing gasoline now.”
In December 2021, Pemex announced that it would have to drastically reduced its crude oil exports in order to meet the López Obrador administration’s plans to have all of Mexico’s oil refined domestically. Pemex is “the single most-indebted oil company in the world,” according to de Castro Medina.
“In Mexico we’ve been used to price controls since forever,” says de Castro Medina. “In the U.S. it’s very different. You see people driving two, three to four hours just to save $15.”
Since gas prices have been surging in California, de Castro Medina says that people in San Diego have been driving to Tijuana to fill their tanks “and take advantage of the fact of being next door to Mexico.” But de Castro Medina says it’s not always convenient. “The border is not that efficient for this to become common practice, it’s easy to come into Mexico but it’s difficult to go back.”
For López Obrador himself subsidizing Mexican oil companies and refineries is a move that’s putting him into “a straight jacket,” says de Castro Medina.
“He wants to appeal to consumers,” he explains, “and so far customers are happy, because gasoline prices have only risen 1 Peso – 5 U.S. cents – or 2 Pesos.”
But de Castro Medina says that while focusing on oil companies, López Obrador isn’t investing in developing renewable companies. “Detractors say ‘This is crazy! This is unsustainable in the long run’,” he says.
Good for Middle Class Drivers
Duncan Wood, a Mexico expert at the Wilson Center think tank in Washington, agrees that the subsidies will not benefit all Mexicans in the long term, but is instead benefiting middle class Mexican drivers and foreigners right now.
“Mexico is subsidizing gasoline prices using government revenue which essentially means that, for every liter/gallon of gas that a U.S. motorist buys south of the border, the Mexican taxpayer is subsidizing an American resident,” Wood says.
“When we consider the scale of the subsidy for the Mexican government, this becomes a real issue. As the price of oil gets higher, the losses to the Mexican government become higher.”
According from data to Mexican think tank IMCO, at a price of $70/barrel, the Mexican government will see a net loss of around 120 billion pesos (around $6 billion), more than the Mexican military receives each year.
If the price hits $100/barrel the losses would get to over 200 billion pesos.
“This will result in a severe drain on public resources at a time when Mexico has seen its debt ballooning,” says Wood.
Why Are Gas Prices So High in California?
Gas prices in the U.S. reached a record high of $4.24 on average across the country on March 11, according to AAA, prompting President Joe Biden to consider what the White House Press Secretary Jen Psaki described on Wednesday as “a range of domestic options” to face the incoming summer driving season.
Gas prices have slightly dropped since March 11, yet they remain exceptionally high in California, the country’s most populous state with more than 10 million residents.
The reason for these exceptionally high prices is to be found in the gas providers California relies on.
Some refineries on the West Coast have shut down because of financial issues during the pandemic, causing the refining capacities of western states to drop 12 percent at the end of last year since the end of 2019, according to data from the U.S. Energy Information Administration.
On top of that, an unscheduled outage at a major refinery in Torrance three weeks ago squeezed the gas market even tighter, reported CNN.
High demands for gas in California, as well as disruptions in the gas supply chain, contribute to prices being higher in California than almost anywhere else in the country.