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Rangeland Aims To Connect Corpus Refineries To Mexico Markets

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Rangeland Energy will soon be laying a loop of rail tracks it hopes will help link Corpus Christi refineries to the fuel-hungry and newly privatized markets of Mexico.

The private-equity-backed company this week announced plans to build a $100 million rail and storage terminal that will be a staging area for gasoline, diesel and other fuels. The petroleum that passes through will join a growing stream of southbound fuels that has attracted the attention of both refineries and companies looking to build infrastructure.

“It’s a huge growth market,” Chris Keene, CEO and president of Sugar Land-based Rangeland Energy, said in an interview. “When you look at where are the emerging markets, certainly in this hemisphere, Mexico is one of them.”

Mexico passed a constitutional amendment opening its energy industry to private companies in December 2013. Since then, the country has been gradually allowing competition into markets dominated by its national oil company, Petróleos Mexicanos, or Pemex, for three-quarters of a century.

Regulators will begin permitting private businesses to import gasoline and diesel from overseas suppliers in April. Previously, only Pemex had been able to import fuels.

The opening of the fuel markets will drive “private investment and will allow the existence of a strong competition in the fuel sector by 2018,” when gasoline prices are deregulated as well, Mexican President Enrique Peña Nieto told a Houston audience at IHS Energy CERAWeek in February.

The shift also will throw open new routes for refineries and traders to sell products into one of the largest markets in Latin America, IHS Energy analyst Marcela Segade said.

Mexico uses about 800,000 barrels per day of gasoline and about 400,000 barrels per day of diesel fuel. The total oil products market is about 1.5 million barrels per day, she said.

And because the country’s six refineries are unable to meet all the demand, a large portion of that fuel comes from abroad. The country imports about 54 percent of its gasoline and 38 percent of its diesel fuel today, she added.

“They will continue to pull product from the U.S.,” Segade said. “Gulf Coast refiners will continue to supply Latin America as a whole and particularly Mexico for 10 years and beyond.”

Already, U.S. fuels are flowing into Mexico. Several natural gas pipelines run across the border, bringing the fuel to power plants, industrial users and other customers.

The U.S. Energy Information Administration estimated 1.1 trillion cubic feet of U.S. gas traveled to Mexico in 2015, up from 729 million cubic feet in 2014.

But some regions of Mexico aren’t served by pipelines at all, said Rangeland’s Keene. His company is hoping for a head start by using rail lines instead of pipelines for shipping. Rangeland Energy said it expects the terminal to be in service by the first quarter of 2017.

“You already have a footprint established of rail yards in Mexico,” he said. “We’ll take advantage of that and move by rail such that you can access inland markets.”

Also last year, the U.S. government made an exception to its now-defunct ban on exporting oil and gave Pemex a license to swap up to 75,000 barrels per day of light U.S. oil for the heavier grades produced in Mexico. U.S. lawmakers lifted the ban on crude oil exports in December.

But those large volumes of fuel came to Mexico through infrastructure owned by Pemex, and it’s not clear that smaller gasoline retails would have access to the logistics they needed to import their own fuel, said Jorge Piñon, a Latin American energy specialist at the University of Texas at Austin.

“The logistics system is not open,” he said. “The mere fact that you are allowed to import fuels doesn’t mean much. You still need access to the docks; you need access to the pipelines; you need access to the distribution terminals.”

Retailers may be able to put foreign brands on their stations, but most of the gasoline will continue to flow from Pemex until distributions networks are privatized as well, he said.

That may begin to happen materialize in May, when Pemex will publish the first iteration of policies governing its approach to allowing private businesses access to its infrastructure, said Steven Otillar, an attorney at the law firm Akin Gump Strauss Hauer & Feld LLP.

“We should see the road map that an actual market participant would need to follow to participate,” he said.


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