Railed movements of refined products are a small portion of Mexico's total imports, but they will grow once Mexico builds new terminals and storage to handle increased traffic, industry officials said at the Argus Mexican Refined Products Markets conference.
Railed crude shipments from Canada to the US Gulf coast run along more efficient networks and offer better returns for energy companies looking to deploy their fleets of owned or leased railcars, said Jennifer Fussell, assistant vice president of sales and marketing for chemicals and petroleum at Kansas City Southern (KCS). The railway runs unit trains from US Gulf coast refining centers into central Mexico.
"These energy companies are looking at … crude by rail that's getting incredible turn times on equipment that is expensive, and then looking at the current infrastructure limitations for Mexico," Fussell said. "Those railcar turns are not as efficient, but they will be."
Terminals capable of unloading unit trains within 24 hours will be key to boosting railed refined products shipments, Fussell said. To that end, KCS said it expects substantial storage to be built in Mexico, to the tune of about 1.5mn bl each year from 2019-2021.
About 60pc of US refined exports to Mexico move by vessel, followed by pipeline at 20pc, truck at 12pc and rail at 8pc, based on an analysis of US cross-border trade data, said Rangeland Energy vice president of business development Michael Moss.
Rail could boost its share to 15-20pc of US refined products exports by 2020 as more terminals and storage are built, Moss said. Rangeland Energy's Corpus Christi products-by-rail and LPG loading terminal came on stream for manifest carload service in June, and is targeting unit train shipments by late in 2019.
Truck operations have had first-mover advantages in Mexico, with cross-border shipments from Corpus Christi and even Houston moving "deep into Mexico," Moss said. Trucking operations will be increasingly limited to border-area deliveries once rail and port options are built out, Moss said.
New international marine fuel rules set to go into effect in 2020 could create new opportunities for Mexico's rail networks.
Pemex's six refineries produce a large amount of high-sulfur residual fuel, which is mostly sold into the bunkers market from Mexico's ports. Once the marine fuels rules take effect, Pemex will need to find other markets for its high-sulfur material. Both Rangeland and KCS said they were targeting ways to tap additional business to carry fuel oil.
The new marine rules will be a significant challenge for Mexico and its refineries, said Jerry Phillips, global market analysis manager for Phillips 66. Mexico's refineries yield about 30pc high-sulfur residual fuel, versus about 3pc for US Gulf coast refineries, Phillips said.
Railroads could support imports of US light, sweet crude to Mexico, which could help Pemex's refineries decrease their residual fuel output because US crude has less sulfur content than many Mexican grades.
"There is no reason why clean products can't import in and crude import out, or even bringing some light sweet into the country," Fussell said. "We see that as an opportunity for Mexico."