Today, I want to provide an overview of the interesting and important role that Brownsville plays in the Mexican energy trade. Yes, Brownsville, Texas, at the southern edge of the United States, plays an important role in maintaining the balance of gasoline, diesel and other products impacting the entirety of the Mexican fuels market. Get the latest right here.
A Lay of the Land
Brownsville sits at the far south-western edge of the United States Gulf Coast, directly across the Rio Grande river from the Mexican cities of Matamoros and Reynosa. The Port of Brownsville is a deep-water seaport with a 17-mile channel with 36 feet of draft that claims several midstream companies as tenants. This location provides broad optionality for receiving refined product and delivering fuels directly into Mexico.
Included in the Brownsville market are a handful of recognizable midstream names as well as some smaller but active private facilities. Through our investment in Bluewing One, we’ve been players in the cross-border trade going all the way back to 2011. In total, there are just north of 4 million barrels of storage, 5 liquid cargo docks, direct interchanges with the Union Pacific, BNSF and Kansas City Southern de Mexico railroads, and access to several international bridge crossing options for tanker trucks. An important note on the trucking side is that the Port of Brownsville issues overweight permits that allows tanker trucks to load to the legal carry weight for Mexico. With about 200 extra gallons per load, the economics are slightly better trucking out of Brownsville.
Products In, Products Out
With over 4 million barrels of storage, what does the volume of trade look like today?
Based on some data points provided by the Bureau of Transportation Statistics and a couple of years of local knowledge, we estimate that roughly 125,000 bpd of refined fuels is passing through the port. That’s approximately 14% of all refined product exports to Mexico. Not bad for a sleepy little port town most people have never heard of, visited or considered for business.
If there are 125,000 bpd flowing out of Brownsville, one might ask, where do the products originate?
On the U.S. side, standard delivery economics rule the day. NuStar Energy L.P.owns a pipeline that delivers approximately 45,000 bpd of diesel and gasoline from Corpus Christi. There is an active rail delivery business into Brownsville for certain products (lubes, waxes, propane), but those volumes are relatively small. The remaining bulk of products landing in Brownsville is delivered via marine vessel (barge or tanker) primarily sourced from Corpus Christi and Houston. Depending on market economics, originating points can include the U.S. East Coast and even Europe.
If the U.S. side is fairly straight forward and economically driven, the Mexican side is a different story. Mexico is more necessity-driven than economic.
The volumes leaving Brownsville use different exit points to enter Mexico depending on their ultimate destination and form of transportation. The Brownsville to Monterrey pipeline owned by PMI/Pemex is the only viable pipeline option into Mexico (when operational). For truck volumes, the options vary, including nearby border towns Rio Bravo and Pharr, with other crossing points further away such as Hidalgo and even Laredo. A majority of the railcars leaving Brownsville cross in Laredo though some depart via the Brownsville crossing.
Outbound, the PMI pipeline delivers 45-50,000 bpd of gasoline and diesel (when operable) to Monterrey—the consumption capital of the north. These volumes line up fairly evenly with the inbound deliveries via the NuStar line. The majority of the remaining barrels departing Brownsville travel over the road by tanker truck which leaves a relatively small share of the product being delivered into Mexico by rail. That equates to a LOT of trucks but see the rationale below.
Sphere of Influence Across the Border
The single pipeline owned by PMI feeds the Monterrey market and supplements the Cadereyta refinery to supply the population center and industrial hub of the north. Consistent delivery is of the utmost importance and highest priority.
With excellent connectivity to Kansas City Southern de Mexico and positive differentials in place, Brownsville marketers can place a barrel anywhere in Mexico by rail. But Brownsville market is not ideal for rail competition. Houston or Corpus Christi can refine a barrel, load it on rail, and deliver it directly to any destination in Mexico. Comparatively, Brownsville needs to receive a barrel (most likely off the water at a cost of $2-4 per barrel) then load that same barrel onto a railcar and ship it at a comparable cost to a destination in Mexico. The added cost of barging the barrel down the coast is an economics killer. Pricing opportunities do arise and, with supply on hand, shipments can be made via rail. It just doesn’t work as a standalone business.
While trucks are arguably the least cost-efficient delivery method in the refined fuels spectrum, they do play a serious and essential role on the border. Consider that the average tanker truck with an overweight permit can hold approximately 8,000 gallons of fuel (just shy of 200 bbls). But a good fleet of trucks is like an accordion, one day delivering 10,000 barrels and the next day delivering 40,000 barrels. Additionally, while pipelines and rail track are destination specific, trucks can deliver fuels to Monterrey today then route barrels to Reynosa, Matamoros, Victoria, Nuevo Laredo and even as far south as Mexico City tomorrow. Unlike pipelines, railroads and bulk facilities, trucks are cheap. Need another 10,000 barrels a day? Buy 50 trucks and have them on the road by Monday.
It only makes sense that Mexico and big conglomerates focus on Mexico City and the center of Mexico. It’s where the most people are, and the biggest problems exist. Those problems would be even bigger and more desperate if the northern region of Mexico was dependent upon a domestic supply that accesses products via the southern ports. When viewed in total, the facilities in the Port of Brownsville play a major role in consistently balancing the fuel market across the three northeastern states of Mexico (Tamaulipas, Nuevo Leon and Coahuila).
But Why Do We Care?
Mexico offers a unique situation with considerable financial implications. Domestic supply is perilous, yet demand is constant to slightly growing. The existing infrastructure has little to no slack in the system (the recent pipeline shutdown exemplifies the tightness in the market) and what is on the ground is old and in need of significant repairs.
Former President Nieto Peña opened the door to foreign investors who have spent the previous four years chomping at the bit to grab a slice of the Mexican market. Billions of dollars have been outlined to solve the asset shortfall. But current Mexican President Lopez Obrador has spoken loud and clear about his intention to solve the imbalance internally giving all the foreign investors sour faces.
Lopez Obrador may plow ahead with his domestic tonic, but results will be disruptive given the lack of infrastructure, the massive cost to cure the problems, financial constraints of Pemex, and the long lead time in fixing, changing, and repairing the system. If the answer is a Mexican resurgence, then U.S. players will look to place their investments elsewhere.
But in Brownsville, you can experience the best of both worlds. An investment in the U.S., built by best in class contractors, and no domestic threats of violence or corruption, with Mexico as the end market. There are other border towns across the southern U.S. that offer those qualities, but they don’t have access to refined products. Brownsville is just down the coast from the refining epicenter. And with that combination, Brownsville has the proximity and water access to deliver the fuels du jour into Mexico on an as-needed basis. It is truly one of a kind.
Inspired to jump into the Mexican fuels market? Click here to contact our international markets team.
Senior Vice President of Terminal Services