The Mexican Energy Reform of 2013 turned the energy sector into a more friendly investment market in tandem with an increasing demand on refined products like gasoline, diesel and jet fuel; a demand that has already exceeded supply. Bearing this in mind, transport is a key element to fulfill the demand. Pipeline systems projects are slowly progressing. Transloading may very well be the short-term solution for Mexico’s logistic challenges while the necessary infrastructure is being built and it truly turns into a potentially profitable economic activity for national and foreign investors.
The end of the State-owned company, Petróleos Mexicanos (“Pemex”) monopoly over the hydrocarbons transport and storage infrastructure generates an opportunity to expand such infrastructure by allowing private companies to develop and operate new infrastructure in Mexico. In accordance with the legislative changes that allow private national and foreign companies to participate directly on the hydrocarbons sector, the demand for transport capacity will most certainly will keep increasing given the fact that more products are required throughout the country for new projects and ventures, as well as for the ever-growing demand for fuel used in power generation.
However, development is slowly gaining pace with three regional pipelines being built. One is the Frontera-Norte 12” pipeline that goes from Corpus Christi, Texas to Monterrey, Mexico. The other two pipeline projects (a 24” pipeline and an 18” pipeline) being currently built –both of them- from Tuxpan, Veracruz on the Gulf of Mexico to Tula, Hidalgo stretching into central Mexico. These pipelines, when completed, will importantly contribute to the transportation network, although they cover only two routes and many more will be needed to alleviate the high demand for refined products transport. Another critical issue is the storage capacity as very few private terminals offer an alternative to Pemex’s infrastructure. Mexican regulation requires for pipeline transport that permit holders must hold “open seasons”. An open season is a procedure through which certain capacity of the transport systems is allocated to potential users. The open seasons held by Pemex represent the most important ones as Pemex has the vast majority of transport and storage infrastructure, although their open seasons represent relatively small amount of their overall transport and storage capacity. It is to be considered that since Pemex holds contractual obligations with different users throughout the country due to the former monopoly that existed prior to the energy reform. Through a process known as “Ronda 0”, Pemex Logística affiliate, Pemex TRI acquired the right to use around 90% of the national pipeline and storage capacity. Therefore, although the Government has carried out different open seasons, these cannot place a large capacity on those open season processes, as it needs the capacity to supply its preexisting users. This is the reason why less than 10% of Pemex capacity will be subject to the open season procedure. It is to be noticed that therefore their already existing pipeline transport network does not allows the participation of new transporters in the market unless they use an alternative to transport product by their own means. This could be achieved by building new pipelines or by using trucks and/or trains to move it.
Transloading is the process by which a transferal of product is done from one transport mean into another for its distribution. To eliminate the need of complex and high cost infrastructure for the transfer, the transferal of product can be achieved directly from a ship into a truck, through the pumps onboard. It could use a simple structure to support hoses and skids for the operation. Another alternative would be a rail car tanker to a tanker truck, which only requires simple mobile infrastructure as well.
As it appears, the lack of transport infrastructure is a key factor that restrains the rest of the midstream and downstream sectors from growing further. Therefore, a practical and relatively economic short-term solution for this situation is the so-called transloading. It enables the transportation of product by truck or train overcoming the lack of transport pipelines or the restricted capacity in their systems. A noticeable advantage is that the infrastructure required for transloading is rather simple and the operation can be made -for example- from a ship directly in to a truck on the dockyard.
Mexican ports offer an opportunity for ships to cut land travel from the United States, being the main refined products exporter to Mexico, and it enables to unload products directly on to the vehicles that will be used for transporting or distributing it, as cost efficient alternative to pipeline transportation given the current low availability of it. Although it is desirable to strengthen the pipeline transport systems throughout the country, this modality may be the solution for logistic challenges while the necessary infrastructure is built and it can be used to enable many projects to be developed regardless of their geographic location.
Transloading as a specific activity of the sector is not currently regulated by Mexican law, with the exception of transloading between train and truck that is regulated mostly for safety purposes by the Ministry of Transportation. However, the National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector (“ASEA”) is drafting specific regulation for the transloading activity regarding industrial safety and environmental protection but is yet to be issued. Industrial safety and environmental protection regulation will consider several specific requirements that shall be met in order to develop this specific kind of activities. Transloading projects require careful legal assessment as the other activities that complement the transloading operation are regulated independently and different permits are needed such as, transport permit, navigation permit, authorizations from port authorities, industrial safety permits, environmental authorizations, trading permit among many others and that depend greatly on the exact nature of the operation.
Transloading rather than just filling the gap presents an opportunity that has further reach and flexibility than pipeline transport. It provides a potentially short-term logistic option, especially when the transporter operates in changing markets. Truck and train transport has a smaller transport capacity compared to pipeline transport, but in exchange has a lower investment cost since the only infrastructure required for the operation other than the vehicles are skids and transloaders with pumps and hoses although storage facilities may also be needed.
Another element that should be assessed in transloading schemes is the possibility of using a ship as a storage terminal, docking it on port and unloading gradually through transloading directly into the transport vehicles as necessary. This would present an alternative over having a storage terminal, and if the demand is not enough to unload the ship at once, it can be used as a logistic alternative. In this case, advantage can be taken from being able to begin operations sooner as no construction of storage infrastructure would be needed. Also the ship could be unloaded through a mono-buoy making operations possible in places with very little infrastructure.
Transloading presents various practical advantages, such as: an increased security and flexibility regarding supply and delivery points available for a wider range of options; not being restricted to the pipeline route; not being subject to the availability of capacity in the system. It incorporates storage flexibility as it can be managed through various terminals depending on their availability and not only on storage terminals connected to the pipeline transport system.
Therefore transloading from either train or ship paired with a truck fleet can address the energy demands from fuel retail stations, power generation plants, industrials and domestic users, many of which are demanding more fuel and gas already surpassing the existing supply capacity. To explore this modality offers interesting investment opportunity. Transloading offers the possibility to invest in the transport sector without the need of making a huge investment, which is required to build large pipeline networks and it takes definitely considerable less time to be able to operate it. Finally, it is worth to mention that although a financial assessment is necessary to determine the economic viability of these kinds of projects, gasoline and diesel ever increasing demands may be met by truck logistical network using transloading, making ventures that previously would have been deemed logistically impossible, a doable alternative.