Kansas City Southern’s petroleum export traffic to Mexico ramps up

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NEW YORK — Kansas City Southern’s latest growth opportunity — shipping gasoline, propane, and other refined petroleum products to Mexico — is beginning to take off as new distribution facilities open on KCS de Mexico lines.

The Mexican government ended the state-run oil and gas monopoly in 2013, opening the sector to private investment and imports of refined products. KCS delivers to distribution terminals located in key manufacturing centers and densely populated areas not served by pipelines.

“We are really starting to see this come to fruition,” Chief Operating Officer Jeff Songer told the RailTrends 2017 conference last week.

KCS worked to get distribution terminal sites permitted, in some cases joining forces with partners such as Watco, WTC Industrial, and Bulkmatic. Ten terminals are currently in operation on KCS, while six more are under construction or are in the planning stages.

“We have a definite first-mover advantage here,” Songer says. “We’ve been working on these things for a very long time.”

The pipeline permitting and construction process in Mexico is even more cumbersome and time-consuming than it is in the U.S., so KCS does not expect the refined products market to be a flash in the pan like crude by rail was for U.S. and Canadian railroads.

“Pipeline connectivity in Mexico is lacking,” Songer says.

There’s also demand for products refined and produced at U.S. Gulf Coast locations, including Beaumont, Houston, and Corpus Christi, Texas. Gasoline storage is Mexico is measured in days, not months like it is in the U.S. And 80 percent of Mexican homes use propane for heating and cooking.

KCS ran the first unit trains to two new terminals — in Salinas Victoria and San Luis Potosi — last month from Gulf Coast refineries via its border crossing at Laredo, Texas, Songer says.

The KCS and Bulkmatic joint venture terminal at Salinas Victoria can handle up to 90,000 barrels per day — but can be built out to a capacity of 720,000 barrels.

The KCS joint venture transload facility with Watco and WTC at San Luis Potosi can handle 300 cars, including refined products, propane, ethanol, and asphalt. The site is currently under expansion, with additional capacity and storage tanks expected to come online in the fall.

“That will allow this unit train to really thrive,” Songer says.

KCS currently sends eight unit trains per month to the Howard Energy terminal in San Jose Iturbide, which has two loop tracks for 120 cars.

“They’ve already outrun the storage capability there,” Songer says.

Once storage rises by an additional 490,000 barrels by the middle of 2018, up from 190,000 today, the facility will receive a dozen unit trains per month.

KCS also can support barge shipments of refined products, hauling them from Mexican ports to inland distribution centers.

The refined products export business has come on quickly.

Shipments rose to 5,418 cars in the second quarter, up from just 1,675 cars in the first quarter. Hurricane Harvey trimmed the third-quarter tally to 5,132 carloads, KCS says. Absent the impact of Harvey and its historic flooding, the railroad estimates it would have handled 6,349 carloads in the third quarter.

Songer spoke on Friday, Dec. 1, at the RailTrends 2017 conference sponsored by analyst Anthony Hatch of ABH Consulting and industry trade publication Progressive Railroading.
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