Wednesday, August 3, 2016

New Products, LPG Terminal Project in Heart of Mexico Faces Slight Delay

Howard Energy Partners' new products terminal at San Jose Iturbide in the heart of Mexico is expected to be ready to receive first products in September, about two months later than previously expected, some industry sources in Mexico told OPIS on Tuesday.

The slight delay is attributed to slower-than-expected construction of storage tanks at the new terminal. The project was initially expected to come onstream as early as May.

Delay in project timing may not be uncommon in Mexico, which is seeing several new products terminals being built. At least one terminal is being built at San Luis Potosi. Apart from San Jose Iturbide, some other new terminals projects are also facing similar delays.

Sources said that new rail and terminal projects, for both oil products and LPG, in the heart of Mexico make "a lot of economic sense" due to the arbitrage economics and supply requirements in that area.

Since the Mexican oil market was open to unrestricted imports earlier this year, incremental products flow from the U.S. and other supply sources into Mexico have been limited by logistics constraints. Several Mexican government officials had highlighted the stronger need for energy infrastructure in Mexico than extra oil products imports from private companies.

Meanwhile, OPIS reported earlier this year that the first product to be shipped to Howard Energy Partners' new products terminal at San Jose Iturbide from Texas via rail was expected to be propane. It is noted that the San Jose Iturbide terminal was initially expected to receive diesel as its first product.

Shipping economics for propane and gasoline via rail on unit trains from Port Arthur to the heart of Mexico are expected to be favorable due to the long distance and economies of scale, but propane profit margin was significantly higher than gasoline. This terminal is expected to accommodate both oil products and LPG.

However, Mexico's Pemex slashed its LPG prices by more than 25%, taking the market by surprise. This reduced the private companies' profit margin for delivering LPG into Mexico.

The Mexican LPG market has been open to all imports since Jan. 1. Pemex is seen stepping up to compete aggressively against private companies to defend its domestic market share by slashing prices.

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