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Recent fuel shortages in Mexico accelerating private imports, BP joins Total and Repsol

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Recent fuel shortages in Mexico accelerating private imports, BP joins Total and Repsol

Highlights

BP plans to build 10 new fuel terminals in Mexico within five years

Lack of storage terminals prevent more fuel railing into Mexico

Mexico City — Fuel shortages experienced in Mexico earlier this year are incentivizing major oil companies to rely less on Pemex's supply logistics system, market observers said Friday.

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BP will join a limited group of major fuel wholesalers that are importing gasoline and diesel to Mexico later this year, the company announced Tuesday.

Repsol and Total made similar announcements earlier this year, joining ExxonMobil, Glencore and Marathon Petroleum as Mexico's only private gasoline importers.

In the second quarter, BP will begin trucking 15,000 b/d of gasoline and diesel from Texas and later rail it into northern, central and western Mexico by the second half of 2019, the company said in a statement.

BP plans to develop 10 new terminals within five years in the country and imports fuel from Ohio, Texas and Washington state, Alvaro Granados, BP Mexico's downstream director, told news agency AFP on Thursday.

PEMEX STILL IS A STRATEGIC PARTNER

Despite this, Granados said BP would continue working with Pemex as a strategic partner. "This won't be an alternative supply chain ... We don't want to skip Pemex nor break what is for us a strategic alliance," he added.

The company has only announced participating at one terminal to date, IEnova's 500,000-barrel Baja Refinados storage and distribution terminal in Northwestern Mexico. BP contracted half of the terminal's capacity, which is expected to be operational in 2020.

The anti-fuel theft strategy implemented by President Andres Manuel Lopez Obrador in December affected major fuel retailers like BP that depended on Pemex to supply their retail stations, Gonzalo Monroy, director of Mexico City-based energy consultancy group GMEC, told S&P Global Platts.

During the height of fuel shortage crisis in mid-January, according to Mexican federal consumer protection agency Profeco, 70% of retail stations it visited during the weekend across 11 states in Mexico's western and central regions were closed due to lack of fuel.

"It is still unknown what the losses were for Pemex's partners, which triggered these companies to diversify their supply," Monroy said. "Fuel shortages showed companies that Pemex's isn't a reliable supply partner," he added.

A RETAIL-FIRST STRATEGY

Majors like BP, Total and Repsol entered Mexico in 2017 with a strategy centered on setting a retail presence first, relying on Pemex for fuel supply and distribution, Monroy said.

Today, BP has a nationwide presence in Mexico with over 450 retail stations. The company plans to have 1,500 stations by 2021, capturing 10%-15% of Mexico's retail market.

This differs from the ExxonMobil strategy, which contracted first an independent supply chain built on Kansas City Southern's rail network, he added. The Irving-based company was one of the few with constant fuel supply in its retail stations in Western Mexico in January.

Fuel shortages in January are accelerating investments from major oil companies in Mexico's midstream sector to decrease their reliance on Pemex, a source close to a major US refiner with a retail presence in Mexico told Platts on Friday.

"Private companies didn't have a clear view of Pemex's weakness in the fuel market until January's shortages," said the source, who was not authorized to speak to the press.

MORE STORAGE CAPACITY NEEDED

Lack of infrastructure is still a significant challenge in Mexico, preventing companies from importing more fuel from the US, he added.

"The big limiting factor right now in that market is the lack of storage facilities in Mexico," Michael Upchurch, KCS's CFO, said Wednesday at a phone call with JP Morgan Chase &CO Research Division.

KCS is currently servicing three different rail storage terminals in Nuevo Leon, San Luis Potosi, and Guanajuato state, translating product directly into trucks. "the only thing that's preventing us from moving even more [fuel] in there are storage facilities," he added.

BP did not respond to several requests for comment this week.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com

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