Friday, January 12, 2018

Report: Mexico fuel imports gain for U.S. rail

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Railroads are seeing the benefits of surging energy shipments to Mexico from the United States, as fuel exports have increased by 40% in the past two years.

Rail is seen as a preferred mode of transport for gasoline and diesel fuel, on account of Mexico’s poorly connected and theft-prone pipeline system, and limited capacity, Reuters reports.

Mexico is the top export market for U.S. fuel, with volume of 1 billion barrels a day worth an annual $20 billion. Those levels are expected to continue on production limited by the poor condition of refineries in Mexico and the increasing number of automobiles in the country.

The report says leasing rates for some tank cars have doubled, while new projects are under way to expand cross-border rail infrastructure.

Rail has become a more attractive mode of transport since only two major Mexican ports handle half of all fuel shipments, while poor road conditions and limited capacity make trucking an expensive alternative. At the same time, pipelines have suffered from underinvestment and a substantial increase in theft from illegal siphoning taps.

Exxon Mobil imported its first large U.S. fuel cargo by rail in December, according to the report, seeing it as safer and more efficient.

Fuel shipments to Mexico soared 200% in 2017 for Class I railroad Kansas City Southern, which operates lines that connect to Mexico’s interior, including Mexico City.

While pipeline projects are under way, “[T]he railroad is already built. Building terminals, buying equipment, all of that is easy compared to building a 1,000-to-1,500-mile pipeline,” Patrick Ottensmeyer, Kansas City Southern Chief Executive, told Reuters. “We have at least a three-to-five-year head start on pipelines.”

The company, which operates a Mexican rail subsidiary, is investing in terminals capable of handling high volume shipments of up to 60,000 barrels per train. It announced $60 million worth of partnerships with short line operator Watco Companies, and WTC Industrial and Bulkmatic, to build storage terminals in Mexico.

Kansas City Southern handled 6,350 carloads of Mexico-bound fuel in the third quarter excluding the impact from hurricanes, a gain of 1,675 carloads in the first quarter. The commodity’s revenue in that time quadrupled to $16 million.

Rangeland Energy is constructing a new terminal in Corpus Christi, Texas, primarily for rail fuel shipments to Mexico, and USD Group of Houston is building a petroleum products terminal northwest of Mexico City. Jefferson Energy Companies is operating a rail-served terminal in Beaumont, Texas, to move refined products to Mexico.

The report said lease rates for older DOT 111 tank cars being phased out in the U.S. but permitted in Mexico have increased to about $500 a month, up from $200 six months ago.

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