Shell didn’t have an ace up its sleeve this time around. Indeed, Logistica’s attempt to auction off storage capacity and pipeline access in Coahuila and Tamaulipas was more flounder than “whale.” Is it back to the drawing board or does the Open Season door get closed for good? Get our take in this issue of Market Update.
An Auction With No Bidders?
Pemex recently announced that the latest open season auction for Logistica assets has closed without a bidder. The result is about what we expected to see when Pemex announced the dismal package that would serve to relaunch the open season process.
Of its many flaws, Logistica’s latest offering suffered most from its gross insufficiency. A fuel delivery supply chain requires scale. When margins are pennies, quantity is the name of the game. This package simply did not provide an adequate platform to conduct an economic operation. Not to mention the challenges of co-mingling stored product, lack of security, and Pemex’s competitive pricing tactics.
Indeed, the latest attempt at Open Season never made it out of the gate. Logistica didn’t want to give up space, and its wish was granted thanks to a halfhearted offering. Will Mexico proceed with the remaining 10 auctions in the hopes that other locations attract more interest? Perhaps Logistica’s transparent insincerity will change the open season approach, or maybe it will kill the program all together. Only time will tell.
Onward and Upward
After a relatively quiet winter, retail stations are back in the news with ExxonMobil announcing a continuation of their plan to create a proprietary supply chain into Mexico. The Irving, Texas-based company recently reaffirmed its position in the country, outlining a plan to open 35 retail stations in San Luis Potosi (SLP) during calendar year 2018. ExxonMobil has also agreed to supply 50 stations that will be operated by Grupo Orsan. All of the new stations will be branded Mobil.
While Mexican consumers can already pump up at Shell, Chevron, Arco or BP, the gas going in their tanks is still being purchased from Pemex. ExxonMobil’s new stations turns that model on its head. As they have been doing with Orsan, the company plans to deliver unit trains of gasoline and diesel via the Kansas City Southern de Mexico rail to SLP. Though storage availability in the area is insufficient, ExxonMobil can transload the fuel directly into tanker trucks for delivery to retail stations.
This origination-to-destination approach makes sense. Combined with Exxon’s additive and a new program that will certify volumes purchased, the company seems positioned for a successful first strike. Customers will have the final say, but I’m banking on long lines and high volumes for ExxonMobil in SLP.
IPO or (more) IOU
Following in the footsteps of Jesus Reyes Heroles, former Minister of Energy and Director General of Pemex, a second voice has chimed in on the idea that a Pemex IPO may be the path to salvation. Juan Carlos Zepeda, President of Mexico’s National Hydrocarbons Commission, recently voiced his support for the move, calling it the only legitimate route to resolve the state oil company’s financial struggles and mobilize the E&P objectives necessary to right the ship.
Many have criticized the authors of energy reform for failing to acknowledge that a Pemex IPO might be necessary to keep the Mexican market afloat. Unfortunately, as the regulations exist today, a constitutional change would be required to list even a small percentage of the company on a public exchange. With President Pena Nieto on the final stretch of his term, and his likely successor in favor of policies that would reduce third party opportunities, any talk of an IPO feels like wishful thinking at this point in time.
However, as financial losses pile up and the debt burden grows, Pemex will need a source of cash for the next several years. Drilling for new production is expensive, repairing the country’s existing assets requires cash, and building out the infrastructure necessary to serve the ever-growing Mexican market … well, that takes A LOT of cash. An IPO may not be the desired route but it may be the only out Pemex and Mexico have.
Interested in breaking into the burgeoning Mexican market? Click here to contact our international markets team.
Senior Vice President of Terminal Services