The Latest News

Pemex Reports Most Important Onshore Oil, Gas Discovery in Last 15 Years

November 3, 2017

Mexico's state-owned oil company, Pemex, said on Friday that Enrique Pena Nieto, president of Mexico, has announced the discovery of a reservoir with light-crude oil and gas.

"This finding is the most important onshore discovery made by Petroleos Mexicanos in the last 15 years," Pemex said.

OPIS notes that Pemex has faced declining oil production in the past several years due to a lack of investment, but energy reform has opened up the exploration and production markets in offshore Mexico to foreign oil companies.
This should help Mexico's oil reserves and production to rebound in the future.

Pemex said that through the drilling of Ixachi-1 well, 72 kilometers south of the port of Veracruz, and close to Cosamaloapan, Pemex discovered this field with an original volume of over 1,500 million barrels of oil equivalent (boe), which could represent total reserves of approximately 350 million boe. This volume is similar to the findings reported by private companies a few months ago at the Zama-1 well.

"The reservoir possesses great economic value due to its closeness to existing infrastructure from production wells to the National Pipeline System, and can therefore begin production in a shorter period of time. Based on preliminary studies it is considered that this reservoir could be extended further, and even double its initial estimated size. In the short and medium term, this discovery will help satisfy the domestic demand of wet gas and light crude oil," Pemex said.


Mexico Quantifies Imports Permits for Oil Products, LPG

November 2, 2017

Mexico's Secretariat of Energy (SENER) said that there were 233 valid permits issued for the imports of gasoline in the country, and 341 for the import of diesel.

SENER also said that there were 117 import permits for liquefied petroleum gas, and 75 permits for the importation of turbosine or aviation fuel.

The import permit data were as of Oct. 23. These permits were issued by SENER. SENER is the energy ministry of Mexico, which is in charge of regulation and production.

OPIS notes that Mexico has been a regular buyer of U.S. oil products from the U.S. Gulf Coast and West Coast. Mexico has seen a rising demand for diesel deliveries via rail into Central Mexico. Northern Mexico enjoys brisk imports of oil products via trucks as well as Pemex pipelines. Several private companies are working to buy terminals in Mexico in order to bring more products via rail and ships. Most of the energy infrastructure is currently controlled and operated by Pemex, the state-owned oil firm.


Pemex Logistica Open Season Process Transforming: Sources

October 26, 2017

In the five months since Pemex awarded Andeavor pipeline and storage capacity in northwest Mexico, the open season for logistics assets slowed for a review by government regulators and is said about to re-emerge as a changed process for the rest of the country, according to industry sources there.

Larger-volume marketers (handling 20,000 b/d or more of gasoline or diesel) will reportedly be able to negotiate directly with Pemex for space in the company's pipelines and storage while smaller-volume players participate in a bidding process overseen by Comision Reguladora de Energia, or CRE.

In fact, talks that amount to private negotiations with Pemex have already begun to take place, according to people familiar with some of the discussions who declined to be identified for commercial reasons.

How provisions for distributors and midsize to large retailer groups seeking access to Pemex logistics might change is unclear, but CRE is said to be resolved on making the company's pipeline capacity available to those players.

No official information about the open season is currently publicly available. However, observers of the process also told OPIS that CRE and Pemex have backed away from a region-by-region approach and plan to offer for lease logistics capacity in the whole country (apart from the northwest) all at one time. As of presstime, Pemex had not responded to OPIS' queries about the open season process.

El Financiero, quoting a Pemex statement, reported in mid-October that the company has said it will offer contract capacity for storage and pipeline transportation of fuel "in the next few weeks."

As previously reported by OPIS, the first stage of the Pemex Logistica open season took longer than expected to conclude and to be finalized, but it has aided U.S. refiner/marketer Andeavor's wholesale supply expansion into northwest Mexico. That plan has so far seen two ARCO-branded fuel stations open (of an anticipated 200 to 400) and the arrival of the first marine vessel delivery of Andeavor gasoline through the Pemex Rosarito terminal.

In late March, retail fuel prices were liberalized in Region 1 (Baja California and Sonora), which was followed by Pemex's logistics award to Andeavor in early May and then by finalized agreements in July.

The open season for Region 2 (Chihuahua, Coahuila, Nuevo Leon, Tamaulipas and Municipio de Gomez Palacio, Durango) had an original capacity assignment date of May 1. However, during that month CRE said a new open season calendar would be issued after the agency had reviewed the results from the first phase and better understood the complexities of other regions.

Retail price liberalization in Region 2 went into effect on June 15 as planned. The staggered price liberalization and open season processes were to roll forward through 2017, with Oct. 30 set for Region 3 prices (Baja California Sur, Durango and Sinaloa); Nov. 30 for Region 4 prices (the 20 states in the central and the southern part of the country) and Dec. 30 for Region 5 prices (Campeche, Quintana Roo and Yucatan).


KCS: 2018 Retailer Entry in Mexico Key to Ramp-Up in Fuel Imports

October 23, 2017

The speed with which new fuel retailers enter Mexico's deregulating downstream petroleum market is key to the opportunities the market holds for Kansas City Southern (KCS), the railway company said Friday.

Just how quickly retailers' plans are implemented isn't known, Executive Vice President and Chief Marketing Officer Brian Hancock said, "but we think here in 2018 you're going to see some pretty significant volumes, not only off of the ports, but also out of the rail lines."

"I think the pipelines are pretty full, they're almost at capacity," Hancock told analysts during a conference call, referring to existing pipelines owned by state oil company Pemex. "So I don't think there'll be significant movement on that space."

New distribution and storage are also part of Mexico's increasing fuel retail landscape, and KCS has invested in new terminals strategically located "to serve major population centers and growth areas that are not close to existing pipeline," he said.

Currently at eight trains per month, capacity at the KCS rail terminal at the Howard Energy San Jose Iturbide transload and storage site is seen expanding to 12 trains/month by April, the company said.

The railroad's TCM joint venture with Watco and WTC in San Luis Potosi currently offers only transload operations, but will have storage capacity by the third quarter of 2018. Another joint venture -- with Bulkmatic -- is now under construction in Salinas Victoria (just north of Monterrey) and will also offer transloading operations and (in Q3 2018) storage.

"Given the difficulty of acquiring land, as well as topographical and security challenges of building new pipelines," Hancock added, "we believe the strategic investments give us a significant foothold in this new and developing infrastructure."

Commenting on shipments of refined petroleum products (including LPG, which constituted 55% of carloads), KCS said year-on-year volume growth for the January-September period increased 17% (excluding impacts from Hurricane Harvey).

"Growth in this business will come in stair steps," Hancock said. "The first portion coming after (the three KCS) facilities are open, and the second, a larger, step will come after construction of the storage tanks is complete in the second half of 2018."

KCS reported Q3 net income of $130 million, up from $121 million a year earlier. Total revenues grew 9% year on year and carload volumes were up 3%. Petroleum revenues for the period were $47.6 million, up 33% year on year. Among the company's six commodity business groups, Chemicals & Petroleum stood as the second-largest revenue earner behind Industrial & Consumer Products. Agriculture & Minerals took third place, followed by Intermodal, then Energy and finally Automotive.

The Energy group includes utility coal; coal and petroleum coke; frac sand and crude oil. Carloads of frac sand rose the most compared to Q3 2016 (130%), with growth in crude oil carloads climbing by 112%.

A transcript of the Oct. 20 KCS conference call can be found at: https://seekingalpha.com.


Andeavor Completes Its First Waterborne Fuel Import Into Mexico

October 19, 2017

Andeavor said on Wednesday that it completed its first importation of fuel, via marine vessel, into Mexico through the Pemex Rosarito terminal in Baja California earlier this month.

This first fuel delivery will be transported via Pemex Logistica pipelines, storage assets and terminals in the state of Baja California, Andeavor said.

Shipping sources said that Andeavor loaded about 300,000 bbl of fuel on the ship, Silver Hannah, at Long Beach on Oct. 1-3 for delivery to Rosarito on Oct. 6-8. Andeavor owns and operates a 380,000-b/d refinery in Los Angeles.

This week, ProFuels (Andeavor's wholesale marketer partner in Mexico) will deliver to stations in the local markets, including ARCO branded stations. Currently, two ARCO stations have been opened and supplied from the U.S. via trucks, which marks the beginning of growth to include an anticipated 200 to 400 ARCO stations in Baja California and Sonora over the next several years.

Earlier this summer, Andeavor was awarded capacity in the open season for northwest Mexico on the Pemex oil products pipelines and in storage terminals. This means that Andeavor has a capability to transport its products from the U.S. -- within the existing infrastructure of the country -- to bring its fuel to the consumer.

Last week, OPIS reported that Andeavor faced some protests from Pemex unionized truck drivers at Rosarito as Andeavor was using non-Pemex drivers and trucks to pick up fuel at the Pemex terminal in Rosarito. The protests were limited to only the terminal.

Some trucking sources told OPIS that Andeavor is actively recruiting U.S. drivers to deliver fuel via truck south of Phoenix and across the border to northern Mexico. This could be in addition to Western Refining's fuel supply to Mexico via pipeline at El Paso, Texas.


Pemex Salina Cruz Refinery Integrating New Generators to Facilitate Restart

October 16, 2017

The Pemex Salina Cruz refinery has received two new turbo-generators from Slovenia necessary to restart the plant after a shutdown necessitated by recent earthquakes and which will ensure its energy security in the future, the company said Sunday.

Now on site, two sets of turbine, generator and auxiliary equipment able to generate 70 MW of energy will be integrated "to bring the refinery into operation as soon as possible," the statement said, without offering more exact dates.

As of Sept. 27, Pemex was expecting to return the 330,000-b/d refinery in Oaxaca to operations in the third week of October.

The refinery was securely shut down on Sept. 8 when problems were discovered in the plant's electrical systems. Initial inspection after the Sept. 7 Oaxaca earthquake (8.2 magnitude) revealed no structural damage. Pemex characterized aftershocks of the first earthquake as "continuous" and said the region's Sept. 23 earthquake measured 6.1 on the Richter scale. The epicenter of that earthquake was about 31 miles from the Salina Cruz refinery.

Enough electricity is seen being generated by the new equipment "to initiate force-start testing at the plants to be able to start operations at the refinery as soon as possible," according to the Pemex statement.


French Oil Major Total to Rebrand 250 GASORED Fuel Stations in Mexico

October 12, 2017

Total SA has inked a deal with a group of Mexican fuel station owners to rebrand some 250 stations in the Mexico City region under the Total brand over the next two years, the Paris-based oil major said Thursday.

The commercial agreement with GASORED is one of several recent deals capitalizing on deregulation of Mexico's fuel sales and the supply market to expand companies' activities there.

Total's presence in Mexico dates back to 1982, according to the company.

"Strengthening our presence in Mexico, Latin America's second-largest market for petroleum products, is in line with our strategy of enlarging our network in growth regions," Momar Nguer, President of Marketing and Services at Total, said in a statement.

Total expects the first Total-branded stations to open by the end of this year and continue through 2019. Customer offerings at the rebranded stations will include Total's full lineup of fuels and lubricants and a range of products and services.

This year has seen a sharp uptick in international fuel brands entering Mexico. BP, ARCO, Shell and Chevron flags have already begun to fly at rebranded stations, and ExxonMobil has announced its intention to open stations in the country before the end of the year.

In May, international trading company Glencore and service station association G500 partnered to create a franchise platform in Mexico to be known as the G500 Network to service over 1,400 affiliated stations.

GASORED is a network of 30 partners operating service stations in Mexico City and the surrounding region since 2004. The group offers "premium services to customers and meets the highest safety and business ethics standards," the statement from Total said. GASORED is led by Victor Suarez.

Total's Mexico operations are involved in specialty chemicals and markets lubricants, additives, special fluids and related services. Total also has interests in four exploration blocks, two of which it operates, in the Gulf of Mexico.


Pemex's Crackdown on Stolen Fuel at Retail Pumps May Reflect Growing Pains

October 6, 2017

Mexico's Pemex is continuing its crackdown on fuel thefts by monitoring and auditing fuel supplies at the 11,000 retail stations across the country, industry sources told OPIS.

Apart from monitoring fuel thefts from its oil products pipeline system, Pemex is also monitoring the fuel deliveries to the local retail fuel stations, looking out for potential transactions of stolen fuel. The state-owned oil company still has the monopoly of the domestic oil market despite the implementation of Mexico's energy reform last year. Pemex still operates and owns all oil pipeline and a majority of oil terminals in Mexico.

Pemex is tallying up incoming fuel deliveries to individual retail stations with outgoing fuel supplies from its regional terminals, sources said.

Pemex has rounded up some potential offenders, revoking their retail station licenses and imposing a hefty fine. A fine for receiving "stolen fuel" for resale at a retail station could be about 600,000 pesos ($32,000).

Pemex could allege the receipt of stolen fuel at a retail station if that input at the retail station does not match outflow records at Pemex terminals.

However, with the market slowly opening up, retailers, especially those in the Northern part of Mexico, now have the option to buy from other wholesalers besides Pemex.

This creates another issue of Pemex branded customers who may be buying cheaper fuel from other wholesale suppliers to boost their profit margins and supplement their fuel supplies.

Mexican retailers, mostly Pemex branded, have long bought fuel from only one supplier, Pemex, before the market liberalization, and they may not be aware of the branded supply regulations, which stipulate a branded customer could buy fuel only from that one brand that they are have contract with.

OPIS notes that this reflects the growing pains of a newly liberated market in Mexico, which is still learning the rules of the game in a free market environment.

In June, Pemex said that it shut down seven retail gasoline stations in Puebla on oil thefts.

In addition, Pemex said that it was seeking help from the public in a whistleblower program. The public could deliver tips on suspected oil thefts to Pemex and the federal police via anonymous emails and phone calls.

Pemex said that it had terminated the Pemex retail franchise contracts of seven service stations located in the municipalities of Palmar de Bravo (2), Cuyoaco (2), Tecamachalco, Huixcolotla and Quecholac in the state of Puebla. These stations had allegedly perpetrated irregular fuel sales and showed fiscal inconsistencies.

OPIS reported in July that the oil theft bill incurred by Pemex was more than $1 billion per year, and this financial burden on the state-owned oil company will continue to grow if the problem is not addressed, according to Adrian Duhalt, a postdoctoral fellow in Mexico Energy Studies at Rice University's Baker Institute for Public Policy.

In a nutshell, the growing oil theft problem in Mexico is attributed to weak regulations and laws on stolen fuel, the rise of more sophisticated organized crime and the lack of opportunities in communities, or poverty, he said. Oil theft is not just an economic problem, but it is also a social issue in Mexico as the poor are enabling the drug cartels with this illegal activity in return for financial support, he said.

Duhalt will be speaking about social, political and financial issues foreign oil companies can expect to deal with in their forays into Mexico at OPIS Mexico- U.S. Petroleum Summit to be held at Mexico City on Nov. 6-9. The summit will also address a wide range of industry topics, including Mexican government regulations, credit issues, demand and supply fundamentals and rail logistics.


Pemex: Salina Cruz Refinery Downtime Extends into October

September 27, 2017

Several earthquakes and Hurricane Katia have affected crude oil production and processing by Pemex this month, and in the case of the Salina Cruz refinery, the impact will stretch into October.

While Mexico's state oil company reiterated Wednesday that Pemex facilities have not suffered structural damage from the events, aftershocks and a third earthquake "have hindered and delayed the renovation work [at Salina Cruz]. It is scheduled to return to operations in the third week of October," Pemex said in a statement.

Pemex characterized aftershocks following the Sept. 7 earthquake (8.2 magnitude) in Oaxaca as "continuous" and said the third earthquake in the region on Sept. 23 measured 6.1. The epicenter of that earthquake was about 31 miles from the Salina Cruz refinery.

As previously reported by OPIS, the 330,000-b/d refinery was shut on Sept. 8 when problems were discovered in the plant's electrical systems. Market sources also told OPIS that three storage tanks were rendered unusable. Previous market expectations had been for operations to resume by the end of September.

OPIS notes that the 190,000-b/d Madero refinery in Tamaulipas has also been down for planned maintenance, and the Cadereyta refinery in Nuevo Leon (275,000 b/d) has scheduled maintenance to begin in early November.

Another impact from September's natural disasters in Mexico included the suspension of operations at the Tamaulipas and Veracruz export terminals due to Hurricane Katia, which canceled several shipments of oil for export, Pemex said.

In a reference to imports of U.S. refined products, Pemex also cited Hurricane Harvey closing the port of Houston and "several refineries on the coast of the Gulf of Mexico" early in September.

Pemex went on to say that September's events decreased its refining capacity (and increased crude in storage to its maximum), making it necessary for the company to reduce its oil production.

October is expected to see the restoration of balance in the Pemex system, gradually "recovering the production of petroleum and refined products."

Pemex will meet its annual goal of 1.944 million b/d on average, "given that August production was over schedule, which will help to compensate for the reduction in September," according to the company's statement.


Pemex: Tuesday's Earthquake Had No Major Impact on Gasoline Supply

September 20, 2017

Mexico's state-owned Pemex says that its assets related to the production, storage and distribution of gasoline were not significantly affected and are operating normally following the 7.1 magnitude earthquake that struck Mexico on Tuesday.

In light of this, Pemex issued a statement Tuesday exhorting the public not to make greater-than-normal gasoline purchases, adding that "gasoline supply is guaranteed."

"Pemex and its workers reaffirm their commitment to Mexico and stand in solidarity with the families that have been affected recently by various natural disasters in different parts of the country," Pemex said.

An earlier massive earthquake on Sept. 7 off the Pacific Coast of southern Mexico disrupted the operations of the 330,000-b/d Salina Cruz refinery in Oaxaca state.

Operations at the Salina Cruz refinery were briefly suspended after the 8.2 magnitude earthquake off the coast of Chiapas state, and then operations were halted again on Sept. 8 because of issues discovered later.

In a statement on Sept. 8, Pemex said it had so far not found evidence of structural damage at the major processing facilities of the Salina Cruz refinery. However, problems were discovered in the plant's electrical systems.

Sources also noted that three storage tanks were rendered unusable and that repairs were underway.

The Sept. 8 Pemex statement gave no guidance on how long resolution of the problems would take.

Mexico is a very big buyer of refined product imports, especially from Europe, because of the Salina Cruz outage as well as planned maintenance at the 190,000-b/d Madero refinery in Tamaulipas state.

Refined product exports to Mexico from the U.S. Gulf Coast have faltered, traders note, due to the significant amount of refining capacity disrupted by Hurricane Harvey as well as to strong demand from Florida, which experienced a consumption spike ahead of Hurricane Irma.


Chevron to Open 10 Retail Fuel Stations in Northwest Mexico by Year-End

September 11, 2017

Chevron will open 10 Chevron-branded retail fuel stations in Northwest Mexico before the end of this year, and up to 250 in the next three years in the states of Sonora, Sinaloa, Baja California and Baja California Sur, a company spokesman told OPIS.

On Aug. 27, Chevron opened its first gas retail station in Mexico at Hermosillo, Sonora.

The new retail fuel stations in Mexico will receive fuel supplies from Pemex during the first few months of store operations, he said.

"We're still working on building a supply chain to bring in fuel -- Pemex has the infrastructure now. But the fuel will have Techron (proprietary additive) added, so (it) will be Chevron gasoline," the spokesman said. Chevron owns three refineries in the U.S., Two of which are located in California -- El Segundo and Richmond. The third refinery is in Pascagoula, Miss.

Local media reports said that Chevron retail fuel prices were higher than Pemex stations in the same area, but the higher prices did not deter drivers from visiting the new Chevron station.

The Chevron spokesman said that Chevron does not set retail prices in Mexico, and local retail station operators set their own fuel prices.

Chevron's retail expansion is headed by its subsidiary, Chevron Combustibles de Mexico. Chevron plans to work with local partners to participate in the importation, distribution and commercialization of refined products in the country.

Chevron supplies fuel to 8,800 Chevron and Texaco stations in the Americas, and 5,000 Caltex outlets in Asia, Africa and the Middle East via Chevron and its affiliates, he said.

Besides Chevron, several large oil companies, including ExxonMobil, Shell, BP and Andeavor, have already opened or are opening retail fuel stations in Mexico.

OPIS notes that the growing presence of international oil companies in the Mexican midstream and downstream markets should give Pemex a run for its money. Prior to the market liberalization, Pemex, the state-owned oil company, had the monopoly of the Mexican market from upstream to downstream. As of today, Pemex still controls a majority of the retail and wholesale markets in Mexico, but this may change in the longer term.

In late 2015, Pemex opened a total of five Pemex-branded fuel stations in Houston and Pasadena.


Northeast Refiners, Oil Players Stepping Up to Supply Florida, Mexico

August 30, 2017

Northeast refiners and oil companies are now stepping up to supply the export destination markets in the U.S. Southeast, the Caribbean, Mexico and South America amid logistics and refinery shutdowns on the Gulf Coast.

These export destination markets are typically supplied by the Gulf Coast, and this rare export opportunity for New York Harbor, which is a net short gasoline market, is opened only because of the Gulf Coast refinery and logistics issues.

The Southeast and Midcontinent regions are facing a lack of products flows from the Gulf Coast due to reduced rates at Colonial Pipeline and a shutdown of Explorer Pipeline. New York Harbor sees a consistent gasoline import flow from Europe, but New York Harbor could offer the quickest resupply to Florida if prompt supply and barges are available.

In the past few days, the Northeast market saw a flurry of gasoline cargo sales, and vessel chartering for Jones Act barges and foreign-flagged tankers for delivery to the south, traders and shipping sources told OPIS on Wednesday. They said that ExxonMobil, BP, Vitol, Marathon and possibly Trafigura had booked barges or ships for delivery down south.

As many as eight ships and barges were booked for loading gasoline for delivery to multiple destinations down south, they said. At least four Jones Act barges are expected to load gasoline in the New York Harbor for delivery to Florida, and as many as three or four foreign-flagged ships have been booked for delivery to the Caribbean, Mexico and South America.

The Northeast and Mid-Atlantic refiners are expected to capitalize on this rare arbitrage opportunity. Philadelphia Energy Solutions has sold out its prompt gasoline supplies due to the sale of several cargoes for delivery to Florida, and possibly other destinations, sources said. It is noted that PES is still supplying the local markets in the Mid-Atlantic, maintaining competitive rack prices.

OPIS reported earlier this week that the New York Harbor market is planning to ship gasoline down to Florida.

Meanwhile, this arbitrage opportunity for Northeast exports may stay open as long as the Gulf Coast refinery capacity remains curtailed by the storm impact.

Some Corpus Christi refineries are in a restart mode, while some in Texas are still assessing their operations after the storm

Andeavor Expects Its Mexican, U.S. Fuel Profit Margins to Be on Par

August 9, 2017

Andeavor's CEO Greg Goff said on Wednesday that the company has limited capital tied up with its fuel supply expansion into Mexico and that its profit margin in Mexico is expected to be about on par with its margin in the U.S.

Goff was responding to a question from an analyst during the company's second- quarter earnings call about risk premiums tied to the company's operations in new markets south of the border.

"We are going to take a portfolio approach and initially our business would be a brand, ARCO branded wholesale business. So from that standpoint, we don't have a lot of capital tied up into the business and we think the margin environment will be somewhat comparable to what we had experienced in the United States," Goff said.

He said that Andeavor will evaluate economic viability of investing in company- operated retail stations in Mexico.

"From a marketing standpoint, we don't see that type of risk that would justify any type of risk profile, it would be different if you are in the refining business, but we see it just comparable to the rest of our marketing business," Goff said.

Goff said that the recent company's announcements on Mexican expansions are focused on the northwest Mexico fuel markets, with an eye for natural synergy with Andeavor's Los Angeles refineries. However, it will also look at supplying fuel in Mexico from El Paso, Texas.

He said that Mexico is a natural extension of Andeavor's value chain. "We believe that as we looked at the market area and at this stage we focus much more on northwest Mexico then we have coming out of [the] El Paso Refinery just because of the time we have had since we closed the acquisition" of Western Refining, he said.

Andeavor had previously said that the targeted part of northwest Mexico has a demand of about 160,000 b/d, of which two-thirds of that volume is gasoline and one-third diesel. That regional demand is seen growing, Goff said.

Andeavor has the potential to grow this new fuel market presence in Mexico significantly over the next five years, Goff said. This would include retail stations, a wholesale business and a commercial business, he added. The product slate will also expand beyond gasoline and diesel, Goff said.

"As we get more into it, we have created an organization that will be partially based in Mexico and in the U.S. and be able to develop that and be able to talk very shortly about what we see the potential to be from an overall profitability standpoint, but it's going to take us three to five years to get to the point we want to get to," he said.

Goff also stressed the importance of working together with Pemex to supply fuel to northern Mexico efficiently.

He said Mexican fuel buyers are experiencing a tremendous change as buyers are now engaged in a very competitive marketplace.

"One of the challenges has been to work kind of effectively with the people in Pemex to be able to think through how you approach the opening and how you structure agreements that work for everyone involved and address all of the different issues that you have in any business like that," he said.

Andeavor is focusing on the details of the entire supply chain, aiming to bring cost-effective supplies to the people of Mexico, he said.

In July, OPIS reported that Andeavor had signed a definitive agreement that will enable the company to supply transportation fuels and launch the ARCO brand in the states of Sonora and Baja California, Mexico. Tesoro plans to integrate supply to Mexico with its West Coast refining, marketing and logistics system and expects to expand the brand throughout Baja California and Sonora to achieve a leading market position in both states.

Andeavor also reached a definitive agreement with Pemex for terminaling and transportation services in Mexico. The agreement will enable Tesoro to supply 30,000-40,000 b/d of transportation fuels in the Mexican states of Sonora and Baja California.



Pemex Still Working on Fuel Production at Salina Cruz Ref.; No Market Impact

August 8, 2017

Mexico's Pemex is still working on producing fuel at its 330,000-b/d Salina Cruz refinery, located on the southwestern seaboard of the country despite restarting the plant at the end of July, some traders told OPIS on Tuesday.

The slow restoration of normal operation and actual fuel production at Salina Cruz refinery has little impact on the U.S. and European gasoline and distillates markets because the slow restart process was "not unexpected," they said. The Salina Cruz refinery was shut in mid-June due to flooding issues after a storm.

OPIS notes that a refinery could be restarted, but it may not be actually producing fuel after a restart. A restart process at a refinery, from the day the units are restarted to actual production of on-spec fuel, could take a few days or weeks, depending on the nature of the refinery issues. Sometimes, a refinery could slowly ramp up the production, which could take a few days or weeks, as a precaution.

Some industry sources in Mexico told OPIS in July that the Salina Cruz refinery could be restarted in two phases.

As previously reported by OPIS in July, some industry sources who do businesses with PMI did not expect the Salina Cruz refinery to restart as planned on July 30, based on the higher-than-normal volumes of gasoline and diesel bought by PMI for June-August deliveries.

"There is nothing fresh from the Pemex refinery situation to impact the oil markets," a trader said.

Sources had said that PMI had been buying gasoline supplies out of Europe, and distillates and gasoline out of the U.S. Gulf Coast. However, purchases from the West Coast market had gone quiet after the prompt requirements were met in late June through early July. This is in line with OPIS reports in June-July on PMI's requirements to resupply amid production losses at Salina Cruz. PMI was expected to buy prompt cargoes from the West Coast refiners at a premium price compared with Gulf Coast and Europe, and PMI was to backfill forward deliveries with comparatively cheaper cargoes from Europe and the Gulf Coast.

PMI is said to have covered its products requirements from now to at least the first half of August. However, based on the slow refinery restart, the European and Gulf Coast products markets may see PMI continuing to cover higher-than- normal supply requirements well into September.

The estimated gasoline supply shortfall from the Salina Cruz refinery shutdown was 65,000-70,000 b/d, traders told OPIS in June. The refinery could have been operating at an average of 76% before it shut down, based on information earlier this year from the Secretaria de Energia in Mexico. None of the six Mexican refineries operate anywhere near 100% capacity; the highest has been Salamanca at 78%, and Madero the lowest at 38%.

A trader said that Mexico's demand for gasoline and components imports could rise to 550,000 b/d from the normal range of 450,000-500,000 b/d, but he noted that the estimated jump could be on the high side.


Analyst: Valero Deal in Mexico an Attractive Platform for Future Growth

August 4, 2017

Valero Energy's new deal with IEnova in Mexico is a positive strategic development for the independent U.S. refiner, researchers at Tudor, Pickering, Holt & Co. (TPH) said in a note to clients Friday.

The arrangement with company subsidiary Valero Marketing and Supply de Mexico widens Valero's current fuel export channel to Mexico through state oil company Pemex by ensuring ratable direct export delivery of gasoline, diesel and jet fuel into Mexico, TPH noted.

Commenting on the deal Thursday, Valero Chairman, President and CEO Joe Gorder said the company was looking ahead to "discussing opportunities with Pemex that advance our respective strategic objectives, as well as discussing supply arrangements with independent retail operators." Distribution possibilities include branded sales, he added.

Secondly, Valero's control of the storage capacity at the three terminals to be built by IEnova (at the Port of Veracruz and near Puebla and Mexico City) "represents an attractive platform for future growth by developing direct marketing channels," TPH said.

That platform presents the opportunity to develop sales into the wholesale market across the rack to independent retailers and distribution into a potential Valero-branded network, TPH said.

In Valero's existing Latin America-focused export strategy, its total product exports have averaged some 385,000 b/d since 2016, or about 15% of the company's total light product output over that time period, the bank said.
Valero has outlined plans to expand total export capacity across its system to 865,000 b/d from 695,000 b/d, according to TPH.

TPH acknowledged that "doing business in Mexico carries meaningful challenges," for Valero and Andeavor (in northwest Mexico) "but these moves represent natural extensions of US refiners' marketing channels."

As reported Thursday, Valero will send refined products to a 1.4 million-bbl import terminal IEnova is building at the Port of Veracruz. Capacity at the planned storage terminals near Puebla and Mexico City is to total 500,000 bbl and 800,000 bbl, respectively.

Valero will have the option to acquire a 50% interest in all of the terminals.

To move product from Veracruz to the inland terminals, Valero executed a separate agreement with rail company Ferromex.

The marine terminal at Veracruz is expected to begin operations as early as the end of 2018, and the two inland terminals are expected to start operations in early 2019.


Andeavor Expects Its Mexican, U.S. Fuel Profit Margins to Be on Par

August 9, 2017

Andeavor's CEO Greg Goff said on Wednesday that the company has limited capital tied up with its fuel supply expansion into Mexico and that its profit margin in Mexico is expected to be about on par with its margin in the U.S.

Goff was responding to a question from an analyst during the company's second- quarter earnings call about risk premiums tied to the company's operations in new markets south of the border.

"We are going to take a portfolio approach and initially our business would be a brand, ARCO branded wholesale business. So from that standpoint, we don't have a lot of capital tied up into the business and we think the margin environment will be somewhat comparable to what we had experienced in the United States," Goff said.

He said that Andeavor will evaluate economic viability of investing in company- operated retail stations in Mexico.

"From a marketing standpoint, we don't see that type of risk that would justify any type of risk profile, it would be different if you are in the refining business, but we see it just comparable to the rest of our marketing business,"
Goff said.

Goff said that the recent company's announcements on Mexican expansions are focused on the northwest Mexico fuel markets, with an eye for natural synergy with Andeavor's Los Angeles refineries. However, it will also look at supplying fuel in Mexico from El Paso, Texas.

He said that Mexico is a natural extension of Andeavor's value chain. "We believe that as we looked at the market area and at this stage we focus much more on northwest Mexico then we have coming out of [the] El Paso Refinery just because of the time we have had since we closed the acquisition" of Western Refining, he said.

Andeavor had previously said that the targeted part of northwest Mexico has a demand of about 160,000 b/d, of which two-thirds of that volume is gasoline and one-third diesel. That regional demand is seen growing, Goff said.

Andeavor has the potential to grow this new fuel market presence in Mexico significantly over the next five years, Goff said. This would include retail stations, a wholesale business and a commercial business, he added. The product slate will also expand beyond gasoline and diesel, Goff said.

"As we get more into it, we have created an organization that will be partially based in Mexico and in the U.S. and be able to develop that and be able to talk very shortly about what we see the potential to be from an overall profitability standpoint, but it's going to take us three to five years to get to the point we want to get to," he said.

Goff also stressed the importance of working together with Pemex to supply fuel to northern Mexico efficiently.

He said Mexican fuel buyers are experiencing a tremendous change as buyers are now engaged in a very competitive marketplace.

"One of the challenges has been to work kind of effectively with the people in Pemex to be able to think through how you approach the opening and how you structure agreements that work for everyone involved and address all of the different issues that you have in any business like that," he said.

Andeavor is focusing on the details of the entire supply chain, aiming to bring cost-effective supplies to the people of Mexico, he said.

In July, OPIS reported that Andeavor had signed a definitive agreement that will enable the company to supply transportation fuels and launch the ARCO brand in the states of Sonora and Baja California, Mexico. Tesoro plans to integrate supply to Mexico with its West Coast refining, marketing and logistics system and expects to expand the brand throughout Baja California and Sonora to achieve a leading market position in both states.

Andeavor also reached a definitive agreement with Pemex for terminaling and transportation services in Mexico. The agreement will enable Tesoro to supply 30,000-40,000 b/d of transportation fuels in the Mexican states of Sonora and Baja California.


Petredec Orders Up To Four VLGCs

Global LPG trading company Petredec has ordered two 84,000-cbm Very Large Gas Carriers (VLGC) with options to build a further two units with Chinese shipyard Jiangnan, the Singapore arm of the group announced Monday. The first two vessels are expected to be delivered during Q2 and Q3 2019 and the optional vessels, if taken, would deliver later the same year, Petredec stated.

The additions would bring Petredec's VLGC fleet to 21.

Petredec said that the vessels will comply with all the latest environmental legislation, including NOx Tier III, the new IGC code and with the USCG-approved Ballast Water Treatment System, to make them some of the most economical VLGCs in the global fleet.

Petredec Chief Executive Giles Fearn stated that the market expects to see accelerated scrapping of older vessels, which are less efficient and don't comply with the latest environmental regulations and face expensive dry docks.

"Petredec must continue to provide the best service to our customers and therefore cannot be too dependent on third party tonnage providers," Fearn commented.

The group delivers over 12 million tons of LPG annually with a controlled fleet of over 70 gas carriers.

 

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