MMEX Resources Corp (MMEX)

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Texas companies scramble to meet demand for refined products in Mexico
Mar 17, 2017, 2:12pm CDT Updated Mar 17, 2017, 2:15pm CDT
INDUSTRIES & TAGS Energy, Oil & Gas, Shipping & Logistics
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Sergio Chapa
Reporter
San Antonio Business Journal
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Several Texas companies are scrambling to build infrastructure projects to meet growing demand for gasoline, diesel and other refined oil products in Mexico.

Mexico has six aging refineries with sagging production. It now imports 60 percent of its gasoline and just under 50 percent of its diesel. The Mexican government adopted historic energy reforms nearly three years ago which opened its fuel market to foreign investment and competition.

Gasoline prices will shoot up by more than 20 percent in Mexico starting on January 1st, 2017.
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Gasoline prices will shoot up by more than 20 percent in Mexico starting on January 1st,… more

As part of those energy reforms, foreign gasoline and gas stations can enter the market. Earlier this year, Mexico removed price controls on gasoline and diese l creating pain at the pump and protests. But a handful of Texas companies see a business opportunity to fill the supply gaps.

Former U.S. Ambassador to Mexico Antonio Garza, who is now with the Mexico City office of international law firm White & Case LLP, told the Business Journal that there is plenty of room in the Mexican market for Texas' refined products.

"The highest point of this demand is taking place in the country's center," Garza said. "Since these companies are exporting to the U.S.-Mexico border and coasts, the important thing will be moving these refined products to that booming center in ways that are still competitive. There are certainly multiple companies that are trying to fill that role through new infrastructure projects. And that's a good thing."

With its refineries operating below 59 percent of capacity and unable to process the heavy crude that its producing, Garza said Mexico's national oil company, Petróleos Mexicanos, has struggled to attract partners to reconfigure its six refineries. The result has been higher imports of light crude and refined products from the U.S.

Refined Products by Sea

One the biggest beneficiaries of the situation has been San Antonio-based refining company Valero Energy Partners (NYSE: VLO). It has exported more than 300,000 barrels of gasoline and around 75,000 barrels of diesel a day to Mexico, according to its latest investors presentation.

Although Mexican law now allows foreign companies to build their own refineries in Mexico, Valero CEO Joe Gorder told the Business Journal in a past interview that his company will continue to ship gasoline, diesel and other products from its refineries along the Gulf Coast to Mexico.

"The fact that we've got the cost advantage in the natural resources side of the business, that gives us a leg up on everybody else," Gorder said. "Quite honestly, U.S. Gulf Coast refining is competitive with any refining business on the planet."

Cross-Border Projects

Valero has a sizable head start but other companies are looking to get a into the Mexican fuels market.

San Antonio-based midstream company Howard Energy Partners is building a 287-mile pipeline that will link Corpus Christi refineries to storage terminals to the wealthy northern city of Monterrey. Under current plans, the Dos Aguilas pipeline will open in the first quarter of 2018.

Another San Antonio-based midstream company, One Cypress Energy LLC, entered into a joint venture with Houston-based Bluewing Midstream LLC to build a storage terminal at the Port of Brownsville where tanker trucks haul shipments of fuel across the border to customers in Reynosa and Matamoros. The two companies recently signed a lease to quadruple their footprint at the port and to step up exports to Mexico.

Center, Texas-based NuBlu Energy wants to open a series of micro-natural gas liquefaction plants along the U.S.-Mexico border where liquefied natural gas can be sold as transportation fuel. The company is looking to open locations with access to natural gas pipelines in the Rio Grande Valley, Laredo and the Del Rio.

Refineries For Export

The Woodlands-based Raven Petroleum LLC announced plans to build a 50,000 barrel per day refinery near the South Texas town of Hebbronville where it would ship gasoline, diesel and other products to customers in the Central Mexican city of San Luis Potosi.

Austin-based MMEX Resources Corp (OTCPK: MMEX) announced similar plans to build a refinery near the Permian Basin town of Fort Stockton where it would also ship refined products by rail to Chihuahua, Los Mochis and to the deepwater Port of Topolobampo in Sinaloa.

MMEX Resources CEO Jack Hanks told the Business Journal that his export project does not compete with the others.

“There’s no refining capacity, as far as I know, in western side of Mexico," Hanks said. "So, I think there’s a big market out there. Those are growing cities.”

Looking beyond Mexico, Hanks said the Port of Topolobampo can ship refined products to other parts of Latin America where his other company, Maple Resources, has done business for decades.

“We’ve done a lot of work over the last year in Peru,” Hanks said. “Peru imports both refined products and crude oil. If you converted it to barrels per day, it’s a combination of more than 160,000 barrels per day. So there are very good markets on the Pacific side and Central America for products.”

Exports Mean Jobs

Gasoline, diesel and other products have long been exported from refineries in Corpus Christi, Houston and other coastal cities to Mexico and other destinations. South Texas Energy & Economic Roundtable President and CEO Omar Garcia is watching the new export projects with great interest. Developing new markets for refined products is also important for sustainable development of the Eagle Ford Shale, Garcia said.

"The abundance of oil in Texas is driving these projects to look at Mexico for future growth," Garcia said. "Several factors will dictate whether or not these projects are successful. For example, supply and demand, oil prices and the future relationship of our trading partner in Mexico."

Sergio Chapa covers manufacturing and the energy industry











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