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Koch plans 40,000 b/d of fuel imports to Mexico

14 Sep 2017, 3.06 pm GMT

Koch plans 40,000 b/d of fuel imports to Mexico

Houston, 14 September (Argus) — Koch Supply and Trading Mexico is importing an 80,000 bl cargo of ultra-low sulphur diesel (ULSD) through the port of Veracruz — likely the first private-party waterborne motor fuel import since Mexico's 1938 oil nationalization.

The company plans for this to be the first of up to 40,000 b/d of refined products that it would import through Veracruz, working under a multiyear agreement with terminal operator Vopak Mexico. Vessel operations were set to start today or tomorrow for the shipment.

"We are already working on plans to add gasoline imports," Koch told Argus. "In addition, we are investigating projects to provide lower-cost supplies of other petroleum products including jet fuel."

The company did not disclose terms of the deal, but said that it has all needed permits.

Mexico's 2014 energy reform opened the way for companies beyond Pemex to import fuels, with the first licenses awarded in 2016. Such imports have so far been marginal, reaching 10,000 bl of gasoline in July, or about 323 b/d, compared with the 480,400 b/d reported by Pemex in June, the latest monthly data from Mexico's government shows.

Koch said that it will send product from US refineries including that of its affiliate Flint Hills Resources' 260,000 b/d facility in Corpus Christi, Texas, through Veracruz. Vopak recently retrofitted its existing terminal to handle fuels.

"By utilizing an existing facility that has been retrofitted, Koch Mexico can deliver imports significantly earlier versus other terminals which have yet to be permitted and constructed," the company said.

Other companies which have announced plans to import more product to Mexico — but through pipelines — include Howard Energy Partners and NuStar. Kansas City Southern has said it will build a rail terminal in San Luis Potosi, Mexico, and Glencore is set to build fuel storage terminals in the ports of Dos Bocas and Tuxpan. Bulkmatic has plans to build storage terminals in Salinas Victoria, Hermosillo, and Tula, Mexico.

Koch said it also aims to compete on cost to supply both fuel retailers and industrial users. Mexico is gradually liberalizing its retail fuel prices after years of price caps. Retail fuel prices in Mexico continue to be higher than in the neighboring US. This is attributed to the lack of investment in Mexico's fuel refining and transportation options, as well as costs associated with rampant fuel theft.

Regular gasoline cost an average of $3.47/USG in Monterrey yesterday, according to prices retailers report to Mexico's government. That is 36pc more than the average price of $2.531/USG in Texas last week, the US Energy Information Administration said.

"By working with Vopak and the regulatory agencies in Mexico we are now able to provide downstream distributors and retailers the opportunity to augment the supplies of fuel that are currently available in the market," Koch Mexico vice-president Pete Ramirez said.

Mexico's government has said that outside imports would help even out prices by adding more competition. But potential importers have said that a lack of infrastructure, a delay in the auctioning of some of Pemex's own midstream capacity and a weekly change in a fuel tax incentive have added uncertainty. Fuel prices are set to be completely liberalized in Mexico by the end of 2017.

Koch Mexico said that it can manage these issues, as it plans for volumes to grow quickly, although demand, the capacity of truck-based suppliers and overall competition will also be factors.

"Having clear, predictable, market-based processes is always beneficial when engaging in import activities," the company said. Koch "is involved in the supply of gasoline and diesel in multiple countries throughout the world, including those with evolving markets and regulatory changes. We are familiar with the challenges associated with both."

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