Bravo, USD bet on Mexico fuel by rail
Mexico City, 11 December (Argus) — Magnified by Mexico's energy reform: This is the first in an occasional series of how small and mid-size companies are tackling the challenges and opportunities created by Mexico opening its energy sector to outside investment.
Owners of Mexico's smallest refinery believe they can provide part of the answer to an obstacle troubling the country's midstream industry — fuel theft from pipelines.
Newport Beach, California-based Bravo Energy's solution begins where a railroad spur ends behind its used oil recycling facility — which functions somewhat as a single cracking unit would in a full refinery — in one of the many industrial parks surrounding booming Queretaro, Mexico.
Mexico's historic opening of its energy sector has created massive opportunities for major players such as BP, ExxonMobil and Shell to drill for oil offshore and open new retail fuel stations. But smaller players like Bravo are also taking advantage of the opening.
"We have been here 10 years," Bravo Energy chief executive Michael Spoor said. "We understand the Mexican market, and the energy reform has created new opportunities."
New railroad ties at the terminal were at the ready earlier this month to begin replacing existing ties following years of disuse. The upgrade, along with other improvements, will let Bravo and its joint venture partner, a subsidiary of Houston, Texas-based USD Group, try to attract shippers to use it as a manifest rail transload and terminal option for fuel imports.
Kansas City Southern (KCS) serves the park once per day, and the spur will allow shippers to send product to Bravo's facility for offloading onto trucks for distribution throughout Mexico.
The spur is not large enough to handle more profitable unit trains, in which all cars are loaded with the same product, but Bravo and USD think the special circumstances of Mexico will help make even manifest rail an attractive option. The company declined to provide investment figures for the project.
Mexico state-run Pemex has said it lost more than $1bn/year to fuel theft in 2016, much of it to well-organized bands of thieves that tap into pipelines.
"We have spent time thinking where we could be exposed to product loss," said Stuart Berg, USD's vice president of business development. "It is a little difficult to tap into a moving train."
While shipping by rail is about five-times more expensive than by pipeline, according to Mexico's energy regulatory commission (CRE), companies including other rail operators are touting it as a more secure solution for now.
Walking the perimeters of his company's lot, Spoor pointed out how learning the used oil market in Mexico prepared them to make the jump into rail. The company already knows how to handle the trucking business from its experiences with the vehicles that bring in used fuel oil, mostly from larger companies that are particularly dedicated to handling waste oil properly, Spoor said.
Doubling the capacity of the recycling unit is also another opportunity created under the reform, as the number of players in the Mexican market expands, Spoor said. A second distillation tower, a mirror of the existing tower that turns used oil into a cleaner product often used as a blending agent, is under construction at the terminal. The expansion is expected to be ready by mid-2018.
Bravo also has operations in the US, Chile and Argentina. The company handles about 25pc of available waste oil in Chile, but Mexico is where the company sees its biggest growth opportunity. Even though they have just a 6pc share of the Mexico market, it is bigger by total volume than the 25pc share in Chile, Spoor said. Globally the company has the capacity to treat 100mn liters/year of used oil, although it does not break out capacity for facility.
"I do not see why it cannot be 25pc [of Mexico's market] in a few years," he said.
Both Spoor and Berg said they are comfortable with the continuity of the country's energy reform, even with presidential elections coming next year.
"We do not think a change in administration would materially change the opportunities," Berg said. "Look at the expansion of the Mexican market already."