The opening up of Mexico’s retail liquefied petroleum gas (LPG) market could provide significant opportunities for U.S. propane and butane producers, as well as midstream companies and exporters. If exports of U.S.- sourced LPG are to increase, though, it would help to have a more robust and efficient system than presently exists for transporting the fuel to the U.S.-Mexico border and, from there, to key LPG consumption markets within Mexico. Today, we continue our look at Mexican LPG imports with a review of existing and planned pipelines.
As we said in Episode 1 of this series, Mexico is the world’s seventh-largest consumer of LPG; it uses 280 Mb/d, on average, about 60% of that use is residential, 14% commercial and 9% industrial, including petrochemical production (another 10% is for LPG use as a fuel for trucks and cars). About two-thirds of the LPG consumed in Mexico is produced within that country; the rest (about 93 Mb/d) is imported, with about 70% of imports (66 Mb/d; or nearly one-fourth of Mexico’s total needs) coming from the U.S. We also discussed the Mexican government’s plan—part of a larger energy sector deregulation effort—to eliminate (in January 2016) the current mandate that state-owned Petróleos Mexicanos (Pemex) serve as the middleman on all LPG imports to Mexico, and to end (in January 2017) the long-standing practice of a government-set retail LPG price. In Episode 2, we detailed the growing U.S. propane surplus headed for export markets as well as the LPG export facilities in place or being developed along the Texas coast, as well as Mexico’s increasing capacity to receive LPG by ship.
Mexico is already the second-largest LPG export market (after Canada) for the U.S. and it is close to the epicenter of natural gas liquid (NGL) production at Mont Belvieu on the Gulf Coast. Most of the 66 Mb/d of LPG that the U.S. currently exports to Mexico is delivered by specialized LPG carrier. In recent months, freight rates for those vessels have been high, but are expected to decline due to deliveries of over 92 new large LPG ships (called VLGCs, or Very Large Gas Carriers, see Boats to Build) between mid-2015 and 2017. However, even if those freight rates come down, it still can be considerably more cost-effective to transport LPG by pipeline. (There are already cross-border shipments of U.S. LPG to Mexico by rail and truck but these are smaller scale and relatively expensive.)
The least cost solution in the long run is pipeline shipments direct from the U.S. to Mexico. To that end, as we outline in this episode, there are a small number of existing pipelines that can transport LPG directly to Mexico and plans are underway to build more in the next two years. Let’s take a look first at existing pipelines that can deliver LPG from the U.S. to Mexico.
Existing U.S.-to-Mexico Pipelines
Dos Laredos Pipeline/NuStar Energy
The 11-mile Dos Laredos Pipeline can move up to 32 Mb/d of LPG from NuStar Energy’s Laredo, TX terminal to a Valero Energy terminal in Nuevo Laredo in Mexico’s state of Tamaulipas. (All but 0.9 miles of the pipeline is on the U.S. side of the border—see red dotted line in Figure 1.) As is the case on the Canadian border (where crude pipelines such as the TransCanada Keystone XL have been delayed by the process) a U.S. Presidential Permit is required to move petroleum products across the Mexican border but these have not been the subject of such controversy as for our neighbors to the north. NuStar’s existing Presidential Permit for exporting LPG to Mexico was issued in December 2003 and the company currently is seeking a new permit that would allow the export of diesel and other refined petroleum products as well as LPG.
To access the remainder of Enciende Mi Fuego (Light My Fire)—LPG Pipelines To And Through Mexico you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at email@example.com or 888-613-8874.