A Dangerous Proposition


What do Mexican drug cartels and 65,000 sq. km of untapped resources have in common? They’re both in this issue of Market Update! Read on to learn more about the problem of organized crime in Mexico’s fuels market, and get caught up to speed on the “Mega Round” auction for 29 deep-water blocks in the Gulf of Mexico.


Tough Choices

We’ve covered the issue of theft in Mexico before, typically from the optimistic perspective that the government will address the problem and business will move forward. Today our outlook isn’t quite so rosy. It is currently estimated that more than $1 billion is siphoned off the Pemex bottom line as a result of criminal interference in the market. Missing trucks, tapped pipelines, fuel sold out of jugs—this is the reality of the fuels trade in Mexico today. And this reality appears to be growing harsher, as “plato o plomo” increasingly becomes business as usual.

Did I lose you? I’ll back up. Mexican civilians who find themselves in the crossfire of a criminal operation are typically offered two choices: Plato, meaning silver, or plomo, meaning lead. It’s a proposition that isn’t hard to figure out. Either the civilian accepts a bribe and allows the cartel to proceed with its criminal activity, or they’ll be removed from the equation entirely. The tactic has been a favorite of drug cartels for years, and is being increasingly used in the fuels trade.

Murder rates are up, pipeline taps are up, and cartel profits are gushing. In Guanajuato alone, 2017 produced 1,096 homicides! That’s a 71 percent increase over 2016. It’s not hard to see why: Guanajuato is located near the Salamanca refinery and is littered with “narcomantas” banners marking rival gang territories. Just a few days ago, Pemex announced that the head of security at the Salamanca refinery had been killed in an attack.

The cartels view the fuels business as an enormous opportunity, possibly even more attractive than the drug trade. After all, the consumers are easier to find, the product doesn’t need to be exported, and it can be sold on any street corner to anyone that drives a vehicle. It all amounts to a big, local, less-risky market than that for narcotics.

The local impact of the cartels’ participation in the fuels market, and the unhindered violence that accompanies it, is very real. Fortunately, a light is shining on this growing problem. Pemex needs to find avenues to protect their employees and their business. At the same time, the government needs to assure foreign marketers that their investment decisions are sound and their people are safe.



I know what you’re thinking … it’s the latest campaign from Houston’s legendary Gallery Furniture owner, Mattress Mack, right? Well you couldn’t be faulted for thinking so, but “Mega Round” is actually one of the terms being used to describe the current round of E&P auctions underway through Mexico’s National Hydrocarbon Commission (CNH).

Round 2.4, as it’s officially called, will put 29 deep-water blocks up for auction to interested and qualified bidders. And those bidders will have high expectations: the CNH estimates that the 65,000 square kilometers up for auction include 4.22 billion barrels of equivalent resources, including heavy and light oil, as well as wet and dry gas.

The 29 blocks represent three times that which was auctioned in Round 1.4, and the current offering accounts for nearly 64 percent of the prospective deep-water marine resources that make up the five-year plan. Accordingly, the investment required to develop these blocks will be significant. How significant, you ask? Current estimates are in excess of $31 billion.

So why the large offering? Well, the timing makes sense given the resurgence in oil prices over the last few months. Combined with the risk of slow to no progress pending the installation of a new Mexican President, the time to put ink on paper is now. This of course assumes the expectation that contracts awarded under the current administration will not be challenged in the future.


We’re Sitting This One Out

Our coverage of the Mexican energy market has focused primarily on marketing opportunities for US firms, and the wave of infrastructure projects that have been announced in support of those opportunities. Indeed, we have covered the full range of assets, including marine, railroad, pipe, terminals and trucks, as well as the seemingly endless stream of new retail entrants popping up across our southern neighbor.

Last week saw a different kind of announcement: one of a major player that does not plan to deploy capital in Mexico. Motiva, owner of a 600,000 bpd refinery in Port Arthur, Texas, has deemed it “not necessary” to invest in fuel logistics and transportation with respect to Mexico.

Does one announcement signal a trend? Probably not. More likely, Motiva has its eye on other ventures with more attractive and/or certain outcomes. And let’s not forget, Motiva can export barrels of gasoline and diesel from Port Arthur to the highest netback market destination, be it Mexico or elsewhere. Maybe Mexico just isn’t worth the headache?

Or maybe Motiva is missing out on one of the biggest growth opportunities in recent memory. What do you think? Interested in getting in on the ground floor of the Mexican fuels market? Click here to contact our international markets team.



Chad Smith
Senior Vice President of Terminal Services