Did You Hear That Crash?


As the saying goes, what goes up, must (eventually) come down. Unfortunately for Mexico, bpd is skyrocketing in the US and plummeting across the border. Is it a blip or a trend? Get the latest in this issue of Market Update. Plus, get a very unscientific glimpse into the Mexican mindset as the presidential election approaches this summer. And find out why Brownsville, Texas, is poised to be ground zero for transport into Mexico in the very near future.


Did You Hear That Crash?

No, I’m not talking about the Dow Jones. I’m talking about Mexico’s domestic oil production. Pemex recently announced that 2017 crude fell by some 9.6 percent from the previous year. That equates to less than 2 million bpd, with December production dipping below the 1.9 million bpd mark. Ouch!

Indeed, the US equity markets aren’t the only volatile indices making waves in North America. But Mexico’s production woes aren’t exactly new. To be sure, the country’s decline began in 2004, after production topped out at 3.4 million bpd. While the ongoing energy reforms are attempting to resuscitate production via foreign investment in auctioned exploration blocks, a turnaround will likely take years.

Meanwhile, on the other side of the border, it’s “crush not crash.” In November, US crude oil production exceeded 10 million bpd! I repeat, ten million barrels per day. These are levels we haven’t seen since 1970—and heck, half of us weren’t even around in 1970! Only two other nations can claim 10 million bpd: Russia and Saudi Arabia.

So to what can we attribute these stellar numbers? Easy: the shale revolution, and more specifically, the shale revolution in the Permian Basin. Crude production out of the region is making a run towards 3 million bpd. Let that sink in: the Permian Basin is producing more oil than the entirety of Mexico. And with huge capital projects from Exxon, Chevron and a bevy of independents, new investment in the region is expected to account for an additional 800,000 bpd in the next two years, driving total US production north of the 11 million bpd mark.


Election Hot Topic

Last week I took a trip down to Brownsville, where I had the opportunity to meet with a group of representatives from the Mexican energy industry. During our conversation, I politely broached the subject of Mexico’s upcoming presidential election. Diplomatically, I asked about the topics that were taking center stage in the campaigns.

I expected to hear about a general population desiring a stronger economy, more jobs, and a favorable renegotiation of NAFTA, etc., etc. My gringo logic told me that the issues probably wouldn’t be too different from those we argue about here in the good ol’ US of A. These are the prevailing concerns everywhere, right? Well, not exactly.

The answers put forth by my Mexican counterparts surprised me at first, but seemed more obvious after I’d had time to properly digest our conversation. The consensus seemed to be clamoring for a president that could stand up to Donald Trump. From NAFTA, to immigration, to export tariffs, the Mexican people want a strong leader who will fight for Mexico. It’s a political hot take that seems fairly consistent with the nationalistic machismo that Mexico is known for, and respected for. Granted, it’s important to note that this exchange was comprised entirely of Mexicans and Americans entrenched in the cross border energy trade, so maybe there is collective bias in the answer I received.

Regardless, their outlook is certainly consistent with Mexico’s longstanding approach to the oil business. Indeed, for the past seven decades, Pemex’s outlook could be summarized in this: We’re smart, we’re proud, these are Mexico’s resources, and Mexicans will protect them and develop them. To that end, Pemex did a pretty ok job—and they’d probably still be the only game in town were it not for the government overtaxing the industry, and thereby stripping it of cash. And everyone in the energy business knows that reinvestment is imperative to continued performance.

So who will be the man to lead Mexico? I don’t know, but my conversation at a minimum was enlightening in regards to what may drive voters when it comes time to cast their ballots on the 1st of July.


Line Improvement

In an exciting development, Kansas City Southern (KCS) has outlined plans to improve the existing rail line that connects Monterrey to Matamoros, the border town directly across from Brownsville, Texas. The three-to-four-year project will expand volume capabilities, and improve rail safety and security.

In the past, this 200-mile stretch served to facilitate the movement of steel for Mexico’s growing auto manufacturing industry. Interestingly, KCS commented that the upcoming improvements are a response to the surge in demand for refined product. That news has many US marketers excited—all the more so given Matamoros’ strategic location near Brownsville.

The Port of Brownsville has seen tremendous growth in the refined fuels sector, as the Mexican energy reform opened the door for imports. Today, most of the fuels arriving by marine vessel are transported to Mexico via tanker truck. However, the economics of delivering 8,000 gallons of fuel by truck limits the markets accessible from Brownsville; Monterrey being on the far reaches economic feasibility.

With an upgrade to the rail system that connects Brownsville to Mexico, the marketing potential out of the port becomes exponentially higher. And guess what? The raw land necessary to upgrade is ready and waiting. With the potential to deliver 2.5 million gallons of fuel by unit train to a single destination, Brownsville’s reach could very well expand to all major consumer markets in Mexico. This is great news for the Port of Brownsville, KCS, and all exporters of fuel bound for Mexico.

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